Breach of a contract

Breach of contract happens when someone doesn't do what they promised in a

contract or when one party fails to fulfill their obligations under the terms of a
contract.
Default of a Contract Obligation: This refers to a situation where a party either
refuses or fails to fulfill a duty required by the contract. This can include not
completing work on time, not delivering goods as specified, or not meeting quality
standards, among other things
Failure can be omission or commission:
• Omission: This means not doing something that they are supposed to
do.like not finishing the job. For example, if a construction contractor fails
to complete a project on time, they are omitting to fulfill their obligation to
finish the work according to the agreed schedule
• Commission: This means doing something that was not allowed or required
by the contract. Like like doing a job poorly. For example, if a contractor
uses substandard materials that were not specified in the contract, they are
commissioning a breach by not fulfilling their obligation to use the specified
materials.
"No breach of contract unless privity of contract exists" means that only parties who are directly
involved in a contract can be held responsible for breaching that contract.

Privity of contract refers to the relationship between the parties who have
entered into the contract.
For example, if you hire a contractor to renovate your house, the contract is
between you and the contractor. If the contractor fails to complete the work as
agreed, you can sue them for breach of contract because you have privity of
contract with them. However, if a subcontractor hired by the contractor does not
perform their work properly, you typically cannot sue the subcontractor for
breach of contract because you do not have privity of contract with them; your
contract is with the main contractor. In simpler terms, privity of contract means
that only the parties who are directly involved in a contract can be held
accountable for any breaches of that contract.
Two Important Things to Prove a Breach:
• Specific Duty: It must be clear what each person in the contract is supposed
to do. If it's not clear, it's hard to prove there was a breach.
• Not Doing What's Expected: It must be shown that someone didn't do what
they were supposed to do according to the contract. If they did everything
they were supposed to, even if it wasn't perfect, it might not be considered
a breach.

Breaching Party: This is the party that fails to fulfill their obligations under the
contract.
Materiality of breach:
Materiality -the quality of being relevant or significant. The more “material” the
breach, the greater the rights and remedies for non-breaching party.
In a contract it refers to how significant or serious a breach of the contract is. In
general, the more material or substantial the breach, the greater the rights and
remedies available to the party that did not breach the contract (the non-
breaching party).
When parties enter into a contract, they do so with the understanding that each
party will fulfill their obligations as outlined in the contract. If one party fails to
uphold their end of the bargain in a significant way (a material breach), it can
cause harm or inconvenience to the other party.
In such cases, it is considered fair to give the non-breaching party greater rights
and remedies to address the harm caused by the breach. These rights and
remedies may include the right to terminate the contract, seek compensation for
damages, or require specific performance to compel the breaching party to fulfill
their obligations.
• Minor Breach: A minor breach is a small or insignificant deviation from the
terms of the contract. In cases of a minor breach, the non-breaching party
may not be entitled to any remedy( loss compensation or cancel the
contract), or the remedy may be limited
• Major or Material Breach: A major or material breach is a significant
violation of the contract terms. In cases of a material breach, the non-
 breaching party may be entitled to more extensive remedies, such as the
right to terminate the contract, seek damages, or require specific
performance (forcing the breaching party to fulfill their obligations under
the contract).

How to judge a breach?

1.Wording of the Contract:
• Explicit and Prominent Provisions: Courts look at the specific language used
in the contract to determine the parties' obligations. Provisions that are
explicit and prominent are more likely to be considered central to the
agreement.
• Clear, No Conflict with Other Provisions: Contracts should be clear and free
from conflicting terms. Ambiguous or contradictory clauses can make it
difficult to determine whether a breach has occurred.
2. Response of the Non-Breaching Party
• Notification: If the non-breaching party notifies the breaching party of the
alleged breach in a timely manner, it shows that they are serious about
enforcing the contract.
• Request for Remedies: The non-breaching party's request for remedies,
such as compensation or specific performance, indicates that they believe
the breach is significant.
• Attempts to Mitigate Losses: If the non-breaching party takes steps to
minimize their losses resulting from the breach, it demonstrates that they
are actively trying to address the situation.

Indicators of materiality:
If Party A breaches some clause in the contract then party B:
• In response to Party A's breach, Party B promptly notifies Party A that a
breach has occurred and reserves their right to seek remedies for the
breach. This notification is important because it establishes that Party B is
not waiving their rights to enforce the contract despite the breach.
 Eg- Party A hires Party B to paint their house by a certain date for a
specific price. However, on the agreed-upon date, Party B fails to show up
to start the painting job. In response to Party B's breach of contract, Party A
immediately sends a written notice to Party B stating that they are aware of
the breach and that they reserve their right to take further action, such as
hiring another painter to complete the job and seeking reimbursement for
any additional costs incurred. By sending this notice, Party A is making it
clear to Party B that they are not waiving their right to enforce the contract
despite the breach. If Party A did not send this notice and instead stayed
silent or took no action, they might be seen as accepting Party B's breach
and could lose their right to seek remedies for the breach.

• Failure to call notice to the breach may constitute a complete waiver of

rights and remedies, or may reduce the materiality of the breach: If Party B
doesn't tell Party A about the breach or waits too long to do so, it could
mean two things:
1. Complete Waiver: Party B might lose their right to enforce the contract
or seek remedies for the breach. It's like saying, "I'm okay with what
happened, and I won't do anything about it."
2. Reduced Significance: Even if Party B doesn't give up their rights, not
telling Party A about the breach quickly could make the breach seem less
important to a court. It's like saying, "It's not a big deal," which could
affect how the court sees the situation.
So, timely notification is crucial for preserving Party B's rights and remedies
in case of a breach by Party A.

What happens if there are disclaimers?

When there are disclaimers or exculpatory clauses in a contract, these clauses can
affect how breaches are handled.
• Disclaimer or Exculpatory Clause: A disclaimer or exculpatory clause in a
contract is like a rule that says if something bad happens, one party (usually
the one who made the contract) is not responsible for it. This is a clause in a
 contract that states that one party (usually the party creating the contract,
like an owner or service provider) is not liable for certain consequences that
would otherwise be considered a breach of contract. For example, a
contract for a dangerous activity might include a clause stating that the
service provider is not liable for injuries.
For example, imagine you sign up for a skydiving adventure. The company might have
you sign a contract that says they are not responsible if you get hurt while skydiving. This
is a disclaimer or exculpatory clause. It means that even if something goes wrong and
you get hurt, you can't blame the company because you agreed to take that risk when
you signed the contract.
• Enforcement: The mere (just) presence of a disclaimer or exculpatory clause
does not guarantee that it will be enforced. Courts will only enforce such
clauses if they are prominently displayed, clear in their intent, and do not
conflict with other provisions of the contract. This ensures that both parties
are aware of and agree to the limitations of liability set forth in the clause.
Just because a contract has a disclaimer or a clause that says one party is
not responsible for something, it doesn't mean that the court will always
agree with it. The court will only enforce such clauses if they are easy to
see, clearly written, and don't go against other parts of the contract.

Anticipatory Breach :
A situation where one party to a contract indicates through words or actions their
intent to not perform their contractual obligations, before the time for
performance has arrived.
• Threat by a Party: If one party threatens to take a particular action, such as
refusing to perform a duty required by the contract, this can be seen as a
breach of contract in itself. The threat indicates an intention not to fulfill
their obligations under the contract. The non breaching party can be
damaged by the threat alone, it is not necessary to wait until the
threatened action actually occurs
• Constituting a Breach: While the threat alone may not be considered a
breach, if the threatening party actually carries out the action or refuses to
perform the duty as threatened, it would constitute a breach of contract.
 This is because the threatening party has failed to fulfill their contractual
obligations.
• Anticipatory Breach: The breach resulting from this type of situation is
known as an anticipatory breach of contract. It occurs when one party
indicates, either through words or actions, that they do not intend to fulfill
their obligations under the contract, even before the time for performance
arrives.

Express obligations-
Express obligations are those that are clearly stated in the contract and can be
easily understood from the language used. For example, if a contract states that
Party A will deliver 100 units of a product to Party B by a certain date, the
obligation to deliver the products is an express obligation. Because contract terms
can vary greatly depending on the agreement of the parties, there is virtually no
limit to the different provisions that parties may expressly insert into a contract.
This means that the types of obligations that can be included in a contract are
extensive and can cover a wide range of scenarios.

Implied obligations
Implied obligations in a contract are duties or responsibilities that are not
expressly stated in the contract but are inferred or understood from the nature of
the agreement.
Implied obligations are based on common understandings and practices within a
particular industry or context. They are obligations that parties would reasonably
expect to be included in the contract even though they are not expressly stated.
Implied obligations are typically fewer in number than express obligations. This is
because they are based on common understandings and practices that are widely
shared, so they do not need to be explicitly stated in each contract.
Frequent situations of contract breach
1. Failure to make payment for completed work: (Express obligation)
The obligation to make payment is expressly stated in contract. The
obligation would be implied even if were not expressly stated.

Failure to make payment for completed work is considered a material

breach of the contract. This means that it is a significant violation of the
contract terms that goes to the core of the agreement.

When an owner or contractor fails to make payment for completed work, it

can excuse the other party (such as the contractor or subcontractor) from
further performance of the contract. This means that the contractor may
stop work until payment is received.

If a contractor is not paid enough money for the work they have done, they
might stop working until they get paid. This is called "abandoning the work.
However, the amount of money that needs to be owed before they can stop
working must be a lot, not just a little. This is what we mean by "substantial
failure to pay." If the amount owed is significant and enough to cause
problems for the contractor, the courts will agree that it's fair for the
contractor to stop working until they are paid properly.

Contractors often include clauses in their contracts that allow them to delay
payment to material suppliers or subcontractors if they have not been paid
by the owner. This is to protect the contractor in case the owner does not
fulfill their payment obligations.

Extremely strong, clear & prominent language in contract is required to

establish contractor’s right to withhold payment of material
supplier/subcontractor in case if owner does not pay

Courts may refuse to enforce the contractor's right to withhold payment if

the material supplier or subcontractor has performed according to the
contract. This means that if the supplier or subcontractor has done their
 part of the work as agreed, they should be paid even if the owner has not
paid the contractor.

2. Interference with contractual performance (Implied warranty )

Every contract implies, or includes, an unwritten promise that both parties
will not do anything that makes it hard for the other party to do what they
promised in the contract. This is to ensure that both parties can fulfill their
duties smoothly.
Owner's Failure: If an owner doesn't coordinate well with multiple
contractors or takes too long to approve plans or provide access to the site,
it can make it hard for the contractors to do their work efficiently.
Prime Contractor's Failure: If a prime contractor doesn't manage the work
of subcontractors properly, it can lead to one subcontractor's work
interfering with another's, causing delays or issues.

3. The Spearin doctorine (implied warranty)- Spearin, where the court ruled
that “if the contractor is bound to build according to plans and
specifications prepared by the owner, the contractor will not be responsible
for the consequences of defects in the plans and specifications.

o Implied Warranty: The Spearin Doctrine refers to the owner's implied

warranty of accuracy and sufficiency of drawings and specifications.
This means that when an owner provides drawings and specifications
to contractors, the owner implicitly guarantees that these documents
are accurate and contain all the necessary information for the
contractor to perform the work as specified.
o The doctrine applies not only to owners but also to prime contractors
or anyone who contracts with and provides drawings and
specifications to the party doing the work.
o If the result of the work is unsatisfactory due to errors or omissions in
the drawings and specifications, the responsibility lies with the entity
that provided these documents. This includes the additional
responsibility for any consequences, such as delays or extra costs,
that result from these errors or omissions.
 o The responsibility extends to the cost of attempting to comply with
defective drawings and specifications. This includes the cost of
correcting the drawings and specifications and any delays that result
from these corrections.

Similar Implied Warranties: There are other implied warranties in

construction contracts that are similar in principle to the Spearin Doctrine:
o Architects and engineers warrant that their design work is
competently performed and meets normal professional standards.
o When providing cost estimates, architects, engineers, and contractors
warrant that these estimates are reasonably accurate.
o Contractors warrant that their construction work will be done
properly and result in a satisfactory product.
o Owners warrant that materials or equipment they furnish are suitable
for their intended purpose.
o Owners warrant that specified construction methods or procedures
will work and produce the desired result.

4. Misrepresentation (implied warranty):

Misrepresentation in a contract refers to a situation where one party makes
a false statement or representation that influences the other party's
decision to enter into the contract
o Breach of Implied Warranty: Misrepresentation can be considered a
breach of an implied warranty that the representations in the
contract documents are accurate. This means that when parties enter
into a contract, there is an implied understanding that the
information provided is truthful and accurate.
o Misrepresentation can be intentional or unintentional. Intentional
misrepresentation, also known as fraudulent misrepresentation,
occurs when a party knowingly makes false statements with the
intent to deceive the other party. Non-intentional misrepresentation,
on the other hand, may occur when a party makes false statements
but does not intend to deceive.
o Intentional misrepresentation is considered a tort, which is a civil
wrong that causes harm to another party. Tortious misrepresentation
 subjects the wrongdoer to punitive damages(monetary
compensation) in addition to actual damages. Punitive damages are
intended to punish the wrongdoer for their misconduct and deter
others from engaging in similar behavior. Unlike compensatory
damages, which are intended to compensate the complainant for
their losses, punitive damages are meant to punish the defendant
and send a message that certain behavior will not be tolerated.
Misrepresentation 3 element:
o Positive Representation: This refers to a clear and definite statement
made in the contract documents. It can be either directly expressed
(clearly stated) or indirectly implied (suggested).. This could be a
statement about the quality of a product, the timeline for completion
of work, or any other aspect of the agreement.
Eg - A seller tells a potential buyer that a house has a new roof- If the
seller knew that the roof was actually old and in need of repair but
falsely stated that it was new to make the house more attractive to
the buyer, this would be misrepresentation.
o Subsequent Discovery of Untruth: After the contract is formed based
on the representation, it must later be discovered that the statement
was untrue or incorrect. This means that the representation was false
or misleading at the time it was made, and this fact is uncovered later
on.
After buying the house based on the seller's representation of a new
roof, the buyer later discovers that the roof is actually old and needs
immediate replacement.
o The party claiming misrepresentation (the non-breaching party) must
have relied on both the representation when entering into the
contract and suffered some form of damage as a result of that
reliance. This means that the party trusted the statement and based
their decisions or actions on that trust, which led to a negative
impact or loss. For instance, if the buyer relied on the representation
of the car being accident-free and paid a higher price for it, but later
 discovers the truth, they may have suffered financial loss due to their
reliance on the false statement.

5. Non-disclosure of superior knowledge (implied warranty):

o Non-disclosure of superior knowledge refers to a situation where one
party in a contract fails to disclose important information that they
are aware of, and which significantly affects the performance or cost
of the contract.
o Non disclosure is a breach if owner( or in case of a subcontract, the
prime contractor) is aware of condition or circumstance and either
concealed it or failed to disclose this knowledge
o Entitlement to Damages: The party that was not informed of the
condition or circumstance is entitled to damages. This includes the
extra costs incurred in dealing with the undisclosed information and
any delays that result from it.
o Form of Misrepresentation: Non-disclosure of superior knowledge is
considered a form of negative misrepresentation because it involves
withholding information that could have influenced the other party's
decision-making process.
6. Improper termination of contract (implied warranty):
Improper termination of a contract occurs when one party terminates the
contract in a way that is not allowed or justified by the terms of the contract
or by law.
o If a contractor or subcontractor is prevented from performing their
obligations because the owner or contractor improperly terminates
the contract, it is considered improper termination.
o The party terminating the contract must be certain that the other
party was actually in default. If the terminating party is not correct
and the court finds the termination improper, it is considered a
material breach.
o If a contract is improperly terminated, the terminated party is
entitled to damages. These damages can be substantial and may
include damage to the contractor's reputation, loss of bonding
capacity, or even bankruptcy of the company.
o Owners and contractors sometimes think they can end a contract if a
contractor or subcontractor doesn't finish small, final tasks called
"punch list" items quickly. However, not finishing these items on time
is not considered a serious breach of contract, so the contract cannot
be ended just for this reason.