What is a Breach of Contract?

When you enter a business contract with another party, you hope everything goes well and that everyone is satisfied with the outcome. Unfortunately, that is not always the case. When delays, financial issues, miscommunications and similar setbacks occur, it may spark a breach of contract. Essentially, contractual obligations go unmet by the parties who entered the agreement. Examples of breach of contract include failing to perform on schedule, failing to perform whatsoever and failing to perform according to the standards laid out in a business arrangement. When a breach happens, one party may take legal action against the infringing party.

What Is an Example of a Breach of Contract?

Say that Jackie, a business owner, contracted with Loose Leaves for a tea delivery the following Wednesday morning. If Loose Leaves delivers the tea Thursday afternoon, that is an immaterial breach of contract. That means that while Jackie can sue Loose Leaves, she cannot seek monetary damages. That is, unless she can show evidence that the late delivery cost her money.

The official business arrangement clearly states that the delivery must be made by Wednesday morning. In this case, Loose Leaves’ late delivery becomes a material breach. Loose Leaves’ liability for failing to meet all contractual obligations becomes more severe. Under such circumstances, Jackie does not have a contractual obligation to pay for the delivery.

Are There Different Breaches of Contract?

The above example touches on a material and immaterial breach of contract. Diving deeper, a material breach means that one contracted party receives a result notably different from the outcome described in the agreement. Usually, a material breach lets the non-breaching party off the hook for having to live up to their obligations. It also allows the person to seek damages from the breaching party.

With an immaterial breach, sometimes called a “minor breach,” one party falls short of meeting a specific aspect of an agreement. That is the case even though the product or service was delivered. Let’s use the example above for an immaterial breach of contract. As a defense to Jackie’s contract violation suit, Loose Leaves may claim that the agreement did not specify a deadline for delivery.

Another agreement violation type is an actual breach. This occurs when a contracted party cannot meet an obligation by an agreed-upon deadline or fails to fully meet an obligation. If one party knows that she or he has a deadline to complete a duty and still cannot meet that deadline anyway, that is an anticipatory breach.

Can One Party Cancel a Contract?

After experiencing an agreement violation, the non-breaching party may cancel the official arrangement entirely. This is also known as “rescission”. Doing so voids the contract and frees all parties named in the contract of their obligations. Some business agreements come with cancellation periods built into them. For example, giving parties four days to cancel a signed contract. Built-in cancellation periods may have specific instructions, such as submitting or mailing a written notice of cancellation to a specific address within a specific time frame.

What Are the Remedies for Breach of Contract?

Those who suffer a breach of contract can seek damages as compensation for their loss. There are several categories of damages:

• Liquidated damages, which are specific damages that parties in the business deal identified if a breach occurred. Such damages must judiciously estimate actual losses resulting from a contract violation.
• Nominal damages, which amount to a small sum for when one party breaches a contract but the other party did not sustain a monetary loss. Specifically, the non-breaching party may receive nominal damages if she or he cannot prove a financial loss. 
• Punitive damages, which is an amount that the breaching party pays that exceeds the point of full financial compensation for the other party. Such damages act as a punishment to the violating party for the wrongful act.
• Compensatory damages, which restore non-breaching parties to the same status they would have reached had the other party fully honored the original business arrangement terms. For these damages, the plaintiff must adequately quantify the total loss for a judge or jury. 

Another type of compensatory damages is consequential damages, which are indirect damages. Touching back on the Loose Leaves example above, the consequential damages for Jackie not receiving her delivery on time could be that she did not make enough profit to cover the monthly rent for her storefront. Under such conditions, she may want to seek consequential damages for a months’ worth of rent.

Are There Ways To Prevent a Breach of Contract?

Prevention is the way to go when parties enter a deal. To sidestep a breach of contract, agreements must include clear wording and language. This is especially vital with parties that do not share the same native language but want to do business together. Going over an agreement together to clear up confusing phrasing and clarify roles can put everyone on the same page.

Anyone who enters a pact must be honest not only with the other party regarding their ability to carry out their obligations but also honest with themselves. There could be personal or external circumstances that prevent one party from holding up their end of the deal.

No line of a business agreement can break any laws or include unlawful responsibilities. Even if one person fails to uphold a contract, should the other party take legal action, the court cannot hold the defendant responsible for an illegal agreement. Illicit acts may be accidental or minor. For example, not following the latest safety regulations or protocols. It can also include foregoing a legally mandated break to complete an official business deal.

Another strategy for avoiding a breach of contract is for all participants to research each other before agreeing to or signing anything. Due diligence may reveal that one person is ill-deserving of trust, breached a previous contract, or failed to properly or fully pay employees or business partners in the past.

Work With an Experienced Local Lawyer

If you experienced a breach of contract, consult with a legal professional to determine your avenues of recourse. You do not have to be the victim of a violated contract. Speak with a legal professional to understand how to avoid one. Submit a request online or call us today at (866) 345-6784 to get in touch with an experienced lawyer in your area!