A breach of contract can be understood as a violation of the agreed-upon terms stated in a contractual agreement. It can take various forms such as failure to deliver goods or services, failure to pay for goods or services, or failure to meet agreed-upon deadlines.
Fortunately, all contracts are legally-binding agreements and hold up in court. So, if one party can establish that a contractual breach occurred, it can pursue a breach of contract claim. Consequently, the matter will be addressed in a court of law.
There are many different types of contract breaches. In this article, we will discuss each one in detail to help you understand and claim your contracted rights.
Understanding the Concept of Breach of Contract
Sometimes, people confuse breach of contract with data breaches or phishing. However, the two are very distinct legal and cybersecurity concepts.
When two companies enter into a legal agreement, both run the risk of a breach of contract. And this happens when one of the two parties fails to fulfill the terms of the agreement.
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In most cases, it happens when an obligation that is stated in the contract is not completed on time. For instance, if you have signed a rental agreement with your tenant, however, he fails to pay the rent on time or vacates the apartment without clearing the last three month’s rent.
Often, parties state the process of dealing with a breach of contract within the original contract itself. For instance, the contract may include that if the payment is made late, the offender will have to bear an additional fee of $20 along with the original payment amount.
But if the consequences for a particular violation are not included in the contract, then both parties will have to settle the matter between themselves. This may involve the formation of a new contract with new terms, arbitration, or any other kind of settlement.
Crucial Elements of a Breach of Contract
The elements of a breach of contract must be present to claim that a breach has occurred.
Below are the most crucial elements of a breach of contract:
- Presence of a valid and legally-binding contract: There must be a valid and enforceable contract in place, with clear terms and conditions that define the rights and obligations of each party. Often, a valid contract contains essential elements such as an offer, acceptance, consideration, and legal capacity of the parties.
- Plaintiff’s performance or some reason for their non-performance: One party must have failed to perform its obligations under the contract, either by not doing something that it was required to do or by doing something that it was prohibited from doing. For instance, if a person developed a software but the receiver did not like the quality, he/she will still be obligated to pay for it.
- The defendant’s failure to perform: The defendant is not entitled to deny the plaintiff’s compensation claim on the grounds of the plaintiff’s own fault. Furthermore, if the defendant made specific tasks impossible for the plaintiff to complete, the plaintiff cannot be held liable for the resulting failure to fulfill those tasks. In such cases, the plaintiff has the right to claim compensation.
- Notice of breach: The plaintiff must provide notice to the defendant of the breach. This notice should specify the nature of the breach, the deadline for remedying it, and the remedy sought. The notice requirement allows the defendant to remedy the breach before the plaintiff seeks any legal solutions.
Once the ingredients of a breach of contract are established, the plaintiff may be entitled to remedies such as damages, specific performance, or cancellation of the contract. The availability and type of remedies will depend on the specific circumstances of the breach and the terms of the contract.
Types of Breach of Contracts
If a contract was breached, the next step involves determining the type of breach that occurred. Based on this, the court of law will specify the appropriate legal response.
Although there are many different types of legal agreements, breaches are typically categorized into four main types. Below, we will discuss each one in detail.
1. Material Breach
A material breach is often the most severe type of breach. Essentially, it involves a significant violation of the terms of the contractual agreement that were deemed as most crucial. Such a breach substantially weakens the value of the agreement for the plaintiff or the innocent party. In other words, a material breach is serious enough to give the plaintiff the right to terminate the contractual agreement and seek damages.
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Let’s understand this with an example:
Imagine if you hire a software developer, and enter into a contract with him to develop a custom software for your business. The contract clearly mentions that the developer shall deliver the software within a specific deadline and the software will meet certain specifications.
Now, the developer may encounter some unanticipated technical issues, causing a delay in the development process. Despite his best efforts, he is unable to deliver the software by the agreed-upon deadline. Also, when you finally get the software, you realize that it does not meet all the specifications specified in the contract.This can be classified as a material breach. The delivery deadline and the software’s specifications were fundamental terms of the agreement, and their non-fulfillment substantially impairs the value of the contract for you. Consequently, you may be entitled to terminate the contract and seek compensatory damages for any pecuniary or other losses suffered due to the breach, such as the cost of finding alternative software or any loss of business caused by the delay.
2. Minor Breach
A minor breach of contract is also known as a partial breach or an immaterial breach. It is a less serious violation of the contractual agreement that does not drastically impair the value of the contract for the plaintiff. Often, it occurs when the party at fault failed to fulfill some part of their obligation.
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Let’s understand this with an example:
Continuing on our previous example, the developer realizes that he will not be able to meet the agreed-upon deadlines due to some unanticipated technical issue. Therefore he informs you about the delay and offers a revised delivery schedule.
When you finally receive the software, you discover that one of the features is not functioning adequately. However, that one feature is not so crucial to the software’s overall functionality. In other words, you will still be able to use the software for its intended purpose.
This is called a minor breach of contract. Although you did not receive the software exactly as you had anticipated, the breach did not drastically impair the value of the contract for you. Therefore, you can request a discount or even a partial refund but cannot legally terminate the contract.
3. Anticipatory Breach
When a breach has not yet occurred, but one of the parties has indicated that they will not fulfill their obligations under the contract, it is termed an anticipatory breach. In this case, the breaching party may sometimes explicitly notify the other party that they will not be accomplishing their obligations. Alternatively, the claim can also be based on the actions that suggest that one of the parties has no intention to deliver.
Let’s understand with an example:
Let’s say a real estate developer signs a legally-binding agreement with an architect to develop plans for his new building by a pre-defined date. If the developer asks for frequent updates on the plans and is not quite satisfied with the results, there is no grounds for an anticipatory breach. Even if the architect is running behind schedule, he may still deploy remedial steps to achieve the deadline.
However, if the architect took actions that made it impossible to achieve the deadline, it may lead to an anticipatory breach. For instance, the architect may stop all the work and commit all his resources to another project with a new real estate developer. This may prevent him from fulfilling the obligations of the contract, constituting an anticipatory breach.
4. Actual Breach
As the name suggests, an actual breach of contract refers to a violation that has already occurred. This implies that the breaching party has either carried out their obligations incompletely or improperly or simply refused to fulfill their obligations.
In case of an actual breach, there are many different remedies that the other party can pursue. For instance, they can seek compensatory damages that occurred directly or indirectly from the breach.
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Let’s understand with an example:
Let’s say a landlord and tenant enter into a lease agreement for renting out an apartment in San Diego for a year. The agreement clearly specifies that the tenant must pay the rent on the first day of each month.
After three months, the tenant fails to pay the due rent amount. This failure is an actual breach of contract. The tenant failed to perform his obligation to pay a specific amount of rent on the due date.
As a result, the landlord may be entitled to take legal action against the tenant. He may seek compensatory damages for any losses he suffered such as unpaid rent or costs incurred in enforcing the lease agreement.
5. Fundamental Breach
If the actions of one party hamper the performance of obligations by the other party, it is termed a fundamental breach. The injured or distressed party can take legal action against the breaching party and seek compensation for damages that occurred due to the unfulfillment of the contract.
Let’s understand with an example:
Let’s say you visited your nearest optical store to order a pair of spectacles. The store gets the glasses made by a third-party vendor. Now, the vendor they hired for your glasses never got back. Consequently, the optical store was unable to fix any glasses in your chosen frame.
This is an instance of a fundamental breach. You neither received the spectacles nor did you make the payment to the store. Additionally, the store manager was not liable to perform any obligation to the third-party vendor.
6. Implied Breach
An implied breach occurs when something is not explicitly stated in a contract but is nonetheless understood to be a part of the agreement. And breach of such obligations is termed an implied breach.
Let’s understand with an example:
Let’s say a company hires a content writer to develop content resources and newsletters for their business. The contract signed between the two parties clearly specifies the deliverables, timelines, and payment terms.
However, the contractual agreement does nowhere mention that the company has to provide the content writer with the necessary information and materials required to complete the project. However, it is implied that the company will provide this information that is necessary for the writer to fulfill his obligations.
Now, if the company fails to offer this information, it will be considered an implied breach of contract since they have failed to perform their obligation to provide the writer with essential information and materials. This breach could give the writer the right to terminate the contract or seek damages for any financial or other losses suffered due to the company’s failure to provide the information.
Conclusion
Contractual agreements are designed to be upheld in court and give equal rights to all parties. However, there are often instances where the obligations are not performed, resulting in breaches. Factors such as unprecedented delays, financial troubles, and other unforeseen occurrences may impede the execution of a written contract.
Therefore, the concept of breach of contract is very much valid in today’s world. Understanding and identifying the type of breach is the first step to remedy the problem.
