When the defaulting party does not comply with a contract, the innocent party can terminate for:
- breach of a condition of the contract, which automatically qualifies as a repudiatory breach
- repudiatory breach: breach of an innominate term where the consequences are so serious that it justifies ending the contract for the bad conduct
- anticipatory repudiatory breach: that is, where the defaulting party makes it clear to the innocent party that it:
- will not perform the contract at all
- will commit a breach of a condition in the future, or
- will comment a breach of an innominate term in the future,
and the consequences will be so serious that it will justify termination.
(You can also have an anticipatory breach of warranty. You just can’t terminate for it.)
Anticipatory breaches are also called “renunciatory breaches” of contract. It’s different lingo for the same thing.
When a repudiatory or anticipatory breach takes place, it is said to be a “repudiation of the contract”.
Different consequences can follow from a breach of contract:
- a breach of warranty limits the innocent party to claim damages, that is a legal obligation to pay money for the loss caused by the breach
- the contract itself may set out the potential consequences for any breach, or a particular type or class of breach
- the remedies available to the innocent party may be limited or extended by the term of the contract itself.
What’s a repudiatory breach of contract?
The most authoritative and frequently applied test to ascertain whether a repudiatory breach has taken place is that “the breach must go to the root of the contract”.
It applies to breaches of innominate terms (and it’s assumed for conditions of contracts).
But what does it mean?
The expression “the breach must go to the root of the contract” describes a breach which takes account of:
- the nature of the contract
- the legal relationship the contract creates
- the nature of the term breached
- the kind and degree of the breach, and
- consequences of the breach for the other party.
Examples of breaches which go “to the root of the contract” include where the defaulting party:
- indicates an intention to abandon and altogether refuse performance of the contract
- shows an intention no longer to be bound by the contract
- intends in fact to fulfil the contract, but may be determined to do so only in a manner substantially inconsistent with its obligations
- intends to deprive the innocent party of substantially the whole benefit that the innocent party should obtain from the further performance of the defaulting party’s own contractual undertakings
- deprives the innocent party of a substantial part of the benefit to which it is entitled under the contract, so that the consequences of the breach would be unfair to the innocent party to hold it to the contract and leave the innocent party to the remedy of damages.
But these are only a few of the ways which courts measure the seriousness of a breach of contract. There are many more.
Why are there so many tests for breach?
Cases for breach of contract are so fact-sensitive that some tests are better suited to particular types of cases and particular types of breaches.
Basically, the different tests suit different types of cases.
So what’s the magic potion to work it out?
Courts decided long ago that it would be a mistake to formulate a fixed rule or formula to decide whether a breach was repudiatory or not.
The law uses these open-textured expressions like those listed above to decide whether the innocent party can argue successfully that they are justified to terminate the contract.
So the formula for assessing breaches of contract is set out in the descriptive tests above.
What does a repudiatory breach look like?
Examples of Repudiatory Breach of Contract
These could well be repudiatory breaches. The outcome also depends on the other factors mentioned above, such as the written terms of the contract:
- Guaranteed overnight courier services:
The implication here is that time for delivery goes to the essence of the contract. If package is not delivered overnight, without any intervening events outside the control of the courier, it’s probably a repudiatory breach
- Website hosting company says that it has a 99.8% up-time per month:
Your website goes down for 5 continuous days
- You order a red dress from a dressmaker. You specified the colour. You receive a blue dress
- Internet service provider: The specification of the minimum bandwidth available at any given time is not met
- Supplier of steel: You order 40-foot lengths of steel from a supplier of steel. They deliver 10-foot lengths.
- Phone supplier: You order an Android phone, and you receive an Apple phone.