| Introduction | | | | tendered by the innocent party; |
| In Commercial Contracts, a provision is normally | | | | # The cost of rectifying the breach; |
| provided allowing either party to terminate upon the | | | | # Any offer by the defaulting party to rectify the |
| other party’s breach of contract. It is common for | | | | breach; |
| contracting parties to include a right for one or both | | | | # Whether the defaulting party has previously |
| parties to terminate for a material breach of the | | | | breached the contract or is likely to do so in the future; |
| agreement by the other party. Lets understand what | | | | and |
| constitutes a material breach? | | | | # Whether the innocent party would be adequately |
| What Is Material + Breach | | | | compensated by an award of damages in respect of |
| # The meaning of "material" depends more on the | | | | the breach. |
| parties and their characterization of the terms rather | | | | Any Breach Vs. Material Breach? |
| than automatically amounting to a fundamental | | | | # Where a clause in the contract states that either |
| repudiatory breach 1. | | | | Party can exercise the right to terminate the |
| # A breach is committed where a party without lawful | | | | Agreement if any party commits a breach of any of |
| excuse fails or refuses to perform what is due from | | | | its obligations under the Agreement. Will it amount to |
| him under the contract, performs defectively or | | | | material breach? |
| incapacitates himself from performing. | | | | # In order for any single breach to give rise to a right |
| # Material breach is possible where the term, | | | | to terminate it had to constitute a repudiatory breach |
| breached is a condition or an in nominate term, the | | | | under common law. The contract should not be |
| consequences of which are so serious that the breach | | | | interpreted in such a way as to defeat its commercial |
| justifies the termination. | | | | purpose. |
| Position under Common Law | | | | # In the context of a commercial contract involving |
| # Common Law rules govern the right to terminate by | | | | substantial investment or at least substantial |
| the innocent Party for breach of contract, provided a | | | | undertaking of financial obligations by one party or |
| repudiatory breach is established, | | | | involving a myriad of obligations of differing importance |
| # The fact that not all contract terms are of equal | | | | and varying frequency, the common sense |
| significance, some are more important than others and | | | | interpretation can be imposed upon the strict words of |
| the distinction has been traditionally drawn between a | | | | the contract. That is to say, a repudiatory breach or an |
| condition and a warranty. | | | | accumulation of breaches that as a whole can |
| # A condition goes to the "root" and "heart" of the | | | | properly be described as repudiatory are a |
| contract, the breach of which gives rise to an | | | | precondition to termination of the Agreement pursuant |
| automatic right to terminate the contract whether or | | | | to such clause3. |
| not any prejudice or loss is suffered. i.e. a "repudiatory | | | | Conclusion |
| breach". Such repudiatory breach amounts to material | | | | # "Material breach", in essence is where "all the |
| breach. | | | | circumstances is wholly or partly remediable and is, or, |
| # Whereas a warranty is a lesser, subsidiary term in a | | | | if not remedied, is likely to become serious, in the wide |
| contract, which only allows the aggrieved party to | | | | sense of having a serious effect on the benefit which |
| claim damages, and does not entitle him to terminate | | | | the aggrieved party would otherwise derive from |
| the contract. | | | | performance of the contract in accordance with its |
| Innominate Terms | | | | terms". |
| # "Innominate Terms" are such intermediary terms that | | | | # The word "material" is directly linked with ‘the |
| neither fall under "conditions" nor "warranties". In case | | | | magnitude of the breach’. In a commercial contract, |
| of breach of innominate terms, the innocent party gets | | | | magnitude can be presumed to refer to the |
| is entitled to claim compensation but may or may not | | | | commercial consequences of the breach were it not |
| be entitled to set aside the contract, depending on the | | | | to be remedied. |
| gravity of the breach. | | | | # Technically specking, remediable breaches should be |
| # An innominate term can be distinguished from a | | | | regarded as Innominate Terms. That is to say, if the |
| condition on the basis that breach does not give rise to | | | | breach is "irremediable" then the parties can rely on |
| an automatic right to terminate performance of the | | | | their Common Law Right to terminate for Repudiatory |
| contract and it can be distinguished from a warranty | | | | Breach, provided the consequences are sufficiently |
| on the ground that the innocent party is not confined to | | | | serious. |
| a remedy in damages 2. | | | | This is a tricky and complicated area of the law, in |
| # A greater degree of flexibility is available and the | | | | which the magnitude of breach ultimately decides |
| Court of Law can focus on the consequences of the | | | | whether a breach is sufficiently serious to justify |
| breach by allowing a party to terminate performance | | | | termination based on all the facts and circumstances |
| of the contract only where the breach of the | | | | relevant to the particular case. Looking from the other |
| innominate term has had serious consequences. | | | | side, if a contracting party gets it wrong and purports |
| Factors Responsible For Serious Breach | | | | to terminate, when he was not in fact entitled to do so |
| # Any detriment caused, or likely to be caused, by the | | | | (because the breach was not repudiatory), he will be |
| breach; | | | | held to have repudiated his obligations under the |
| # Any delay caused, or likely to be caused, by the | | | | contract and may be liable to pay substantial damages |
| breach; | | | | in consequence. |
| # The value of any performance received or | | | | |