A breach of contract occurs when a party to a contract does not honour the terms of the contract. This can be because one party:
- Does not perform by the time agreed on the contract;
- Does not perform in accordance with the terms of the contract; or
- Fails to do what they agreed to do at all.
In Australia, a breach of contract can be divided into four categories depending on the type of breach that has occurred. Each category has a different kind of remedies available to resolve the breach.
Material breach of contract
A material breach is the most severe type of breach. This occurs when one of the key terms of the contract is not delivered or performed as agreed per the contract.
An example of this type of breach is where you are building a house and the builder fails to perform the contract as agreed – such as building your house but not the deck and garage as agreed upon.
With this kind of breach, the wronged party would be able to claim remedies such as damages from the party who breached the contract. The wronged party may also be excused from performing their end of the contract.
Minor breach of contract
A minor breach is not as severe as a material breach.
An example of this type of breach would be if you were delivered goods – such as an order of 100 table and chair sets – and you found that there were two legs missing for one of the table and chair sets.
The remedy for this type of breach would be for the party who breached the contract to rectify the breach – in this example – to provide the missing two legs or another full table and chair set. The wronged party would still have to perform their end of the contract (i.e. pay for the goods).
Anticipatory breach of contract
This is where one of the parties to the contract tells the other party that they won’t be fulfilling their part of the contract prior to them actually breaching the contract.
An example of this type of breach would be if a person owes another person money and they have come to a written agreement on what date to pay and how much. Before the first payment is due – the breaching party tells the other party that they would be not performing their side of the contract by refusing to pay the money.
This kind of breach allows the wronged party to claim remedies such as damages and repudiation of the contract.
Actual breach of contract
This situation occurs when one party fails to perform their side of the contract.
An example of this type of breach is where a person has paid for goods or services and the person or company who is supposed to be supplying the goods or services fail to do so.
This kind of breach allows the wronged party to claim remedies such as damages.