Breach of Contract (NT)
A contract is a binding legal agreement between two or more parties that creates mutual obligations. Employment relationships, legal agreements and commercial transactions are all regulated by contracts. These contracts are usually in writing but can also be based on an oral agreement. If one party breaches the agreed terms of a contract, the other party can take action to remedy the breach of contract. This article explains breach of contract and how these breaches can be remedied in the Northern Territory.
Contracts in the Northern Territory
Any adult with legal capacity (and minors in some circumstances) can enter into a contract in the Northern Territory. There are three elements that make up a contract:
- Agreement between the parties, where one party offers something, and the other party accepts the offer;
- Each party contributes something of value (consideration) to the agreement. Consideration can be money, goods or services; and
- The parties enter into the contract willingly.
What is a Breach of Contract in the Northern Territory?
There are several different ways a party can breach a contract: material/fundamental breach, minor breach, anticipatory breach, and actual breach of contract.
The most severe type of breach is a “material/fundamental” breach. This type of breach involves a party not providing or undertaking as agreed, a key element of the contract. For instance, if a person received a substantially different good than specified in the contract, this would be considered a material/fundamental breach. Such a breach immediately ends the wronged party’s contractual obligations.
A “minor” breach, by contrast, does not immediately cancel the contract, but does provide an opportunity for the wronged party to seek a remedy. An example of a minor breach of contract is if a person buys an electrical good and the instruction manual is missing a page. This does not make the electrical item unusable, but the purchaser may not understand all the functions without the necessary instructions. In that case, the seller is obligated to remedy the breach by ensuring that the purchaser obtains the missing information so they can operate the goods as intended.
By contrast, an “anticipatory” breach of contract involves someone stating, before the contractual date, that they do not intend to fulfil their side of the contract. An example is if a party agrees to buy a property but advises that they will not be able to pay for the property on the settlement date. In cases of anticipatory breach, the wronged party is entitled to remedy for breach of contract.
An “actual” breach of contract is the most common form of breach. This occurs when a party to a contract fails to perform their side of a contract by the contractual date.
Performance of contract
Each party must comply with the performance terms of the contract, otherwise it is a breach of contract. A party fails to fulfil their obligation by not performing an action as agreed, or not completing the action within the stipulated time frame. Certain breaches of contract result in the other party being able to consider themselves free from their contractual obligations. In that circumstance, the other party can choose to continue the contract and meet their own obligations.
Alternatively, the other party can refuse to perform their part and take action against the defaulting party for compensation. Parties that have sustained loss are entitled to damages. As much as possible, the injured party should be left in the same position as if the contract had been properly performed. However, the aggrieved party must also do their utmost to mitigate their loss. Otherwise, the court may not allow a claim for full damages.
Sometimes a contract sets out an amount or formula that is payable if there is a breach. Otherwise, the wronged party can sue on quantum merit, where the court determines how much the innocent party should receive in compensation and damages. The amount of compensation is typically equivalent to the promised goods or services and any damages that result from the breach. The court can account for prospective loss and actual loss when assessing damages.
Sometimes a breach does not end the contact. If it is a minor breach, there may be insufficient grounds to terminate the contract. Also, the innocent party may prefer not to repudiate the contract. In that case, the wronged party can:
- Sue the defaulting party for specific performance. The court directs the defaulting party to carry out their contractual obligation. This remedy is only suitable when damages cannot provide compensation for the breach of contract. Specific performance is not suitable if the court cannot oversee the performance of the order;
- Obtain an injunction restraining the defaulting party from repeating their conduct. When there are pending court proceedings, the court can grant an injunction to prevent the defendant from selling or otherwise disposing of the property in question; or
- Sue for damages to compensate for funds lost because of the breach. When there was no loss sustained, the court can award nominal damages if there has been an infringement of legal rights.