Types of terms
The law decides whether a breach of contract is serious enough by deciding which type of term in the contract has been broken. A term in a contract is known as either a condition or warranty. A warranty is not the same as the promise made by manufactures of goods or services In relation to repair or replacement if it should fail within a fixed period of time, often 12 months.
A term which can be either a condition or a warranty depending on the nature of the failure is known as an innominate term.
A condition is a term of the contract that goes to the heart of the contract. If you were to rent a new building, to sell mobile phones in, one condition would be that the building is secure. If the building has the roof collapsing, then clearly u would end the contract and either rent a different building to start a new mobile phones store or go elsewhere. The failure to provide a secure building would be a breach of condition of a contract and you would probably be entitled to treat the contract as ended. If the problem was easily fixed, you might decide to delay proceedings and continue the contract, but seek damages as compensation for the delay. In law it is your choice if a condition has been broken.
A warranty, on the other hand, is a minor term of the contract. If it is broken, loss will result, but the main purpose of the contract will still be achieved. If you were to rent a building for a store and the rental company offered you one which had shutters, if the shutters didn’t go all the way down or weren’t working properly as they are intended to, you would be expected to pay less and be compensated if the shutter didn’t go back up, for you to enter the building or store. This would be a warranty and you have to continue with the contract, but would expect compensation for any minor incidents that could occur.
Actual breach and anticipatory breach
Breach of contract can occur in two ways: actual breach and anticipatory breach. Actual breach occurs either through poor performances of the contract, where there is performance of the contract but the work is done badly or the goods are substandard, or by non-performance where the work is done or the goods are not provided at all.
Anticipatory breach occurs when one party to the contract states or otherwise indicates that there will not be performance of the contract. This is usually that goods or services will not be provided. As soon as this has happened, the person affected can start legal action under the contract. This would occur in the situation where a person told a mobile phone provider that he did not wish to continue with the contract after two months of a 12 month contract. An example of this can be seen in the case Hochster v De La Tour (1853), where a tour guide was told that his services would not be required despite the contract for him to work in two months’ time, here the guide has a choice: he could wait and see if the guide work was in fact wanted after all on the due dates, or treat the contract as ended and take immediate legal action to recover damages for his losses.
The consequences of breach of contract
Whatever type of breach has occurred, the party to the contract affected by the breach automatically has a right to damages. That party can also treat the contract as repudiated and take no further action under the contract where the breach is a breach of a condition or an innominate term that has been broken in a serious way so that it is in effect a breach of condition.
Breach of contract can either end the contract because the breach is serious or be a minor breach where damages are payable. Breach can be actual breach – the breach has happened – or anticipatory breach, a statement of intention not to perform the contract in the future.
Here are two cases I have studied; these illustrate the distinction between a condition and a warranty. These are Poussard v Spiers and Pond (1876) and Bettini v Gye (1876). In Poussard v Spiers and Pond, an opera singer made a contract to sing in opera. She failed to attend the first six performances and was replaced for the entire run of the opera. She could only be replaced if her failure to attend was a breach of condition. The court decided that this was a breach of condition. The court decided that this was a breach of condition as her role was central to the performance and a replacement singer would not want to perform only for a few days. The promoters could therefore replace the singer without paying compensation as she broken a condition of her contract.
In Bettini v Gye an opera singer made a contract to perform from March to July and was also required to attend six days before performances were due to start, for rehearsals. He failed to attend the first two days of rehearsals. This was a breach of a warranty and not breach of condition, as his failure to attend only caused some inconvenience; other parts of rehearsal could continue without him and the promoters would not lose much, if any money. They could not treat the contract as ended and replace the singer. Damages were the only remedy available. If the promoters had refused to use the singer in their performances, they would have broken their side of the contract and the singer could have then have taken legal action against them of damages.