A breach of contract is a legal term that is used to describe a situation where one party does not honour terms of a legal agreement. This can happen because of unexpected events, financial issues, unforeseen delays, or a myriad of other reasons. For instance, if you complete a job as an independent contractor and the employer does not pay as agreed, he/she will be in breach of contract. This is one of the most common cases that is brought up in small claims courts.
When you sign a business contract, you and the other party or parties are bound legally to fulfil the obligations in the contract. When one of the parties fails to fulfil his or her obligations without a lawful excuse, the contract can be considered breached. A breach of contract therefore occurs whenever the terms of a contract are not met in a timely manner, are not in accordance to the requirements of the contract, are only partially met or are not met at all. In case one of the parties to the agreement breaches the contract, the other party may be entitled to financial compensation, which will usually be determined by a competent court of law.
Types of Contract Breaches
A breach of contract can be classified as either material or immaterial, and the specifics of each case will be used by a judge to determine exactly which type of breach that particular case falls under, and consequently, the applicable restitution to the non-breaching party.
In a material breach of contract, the party in question did not fulfil his/her contractual obligations in totality. In other words, a material breach of contract occurs when a person or business gets a service or product that is considerably different from the one that was agreed upon.
In case this has taken place, the party that incurs damages can seek compensation in a court.
In case a material breach of contract occurs, the party that did not breach the contract is no longer bound by the terms of the contract and has a right to remedies. To determine whether a material breach occurred, the court ask these questions:
- Did the non-breaching party of the contract benefit?
- Is it feasible to sufficiently compensate the non-breaching party for the damages?
- Did the breaching party fulfil any obligations of the contract?
- Was the breaching party subjected to undue pressure and hardship?
- Did the breaching party negligently or wilfully breach the contract in question?
- Is there is a possibility that the breaching party will fulfil the remaining obligations of the contractor?
An immaterial breach of contract on the other hand refers to a situation where the breaching party to a contract delivers only a small part of what was required, which usually does not affect the overall outcome of the agreement.
Breach of Contract Examples
If a delivery was contracted to be delivered by Wednesday night, and it is delivered on Thursday morning, this can be considered as an immaterial breach of contract by the court. This means that the late delivery did not result in damages and therefore it does not require any monetary compensation. Nonetheless, in case the contract states explicitly that time is important and the product must arrive by Wednesday night, this will be considered a material breach. In this particular scenario, the party that purchased the product will be likely reimbursed for the cost of the delay, and possibly compensated for any other damages that may have been caused by the lateness.
When a breach of contract case is brought in front of a court, the judge will have the following questions for the plaintiff:
- Whether there was a contract
- What the terms of the contract were
- Whether the contract was ever modified
- Whether the breach of contract occurred
- Whether the breach of contract was material or immaterial
- In case the party who allegedly breached the contract had a lawful reason for doing so
- The extent of damages that was caused by the breach of contract, if any
What Next After a Breach?
A breach of contract can result in wasted money and time, as well as frustration for the business and individuals involved. When the breach of contract occurs, one or both of the parties can take a legal action to recover financial damages or have the terms of the contract enforced. Informal resolution methods, such as a arbitration or mediation, are always the best routes to take to find a resolution, as they are usually less expensive and less time consuming. If however such alternative method does not work, or does not provide an acceptable resolution to any of the parties, then a lawsuit, initiated and carried on with the help of a litigation attorney, is the next logical option. Depending on the amount of money that is being claimed in damages as a result of the breach, you may alternatively opt to file a case in a small claims court if the sum in question is a relatively small amount, of which the particular maximum amount is determined by the particular jurisdiction one is located in.
However one decides to seek compensation for a contract breach, you will need to provide evidence to back up the claim of a breach of contract. This can however be very difficult if the contract was verbal or implied. In such cases, you will need to prove the following:
- That there was a contract
- That the contract was breached
- That you incurred financial or other types of losses as a result of the breach
- That another party to the contract breached the contract without any lawful reason
How Courts Resolve Breach of Contract Lawsuits
Courts have several options that it can use to deal with proven breach of contract violations. Here are a few:
- Awarding damages- The court may award monetary compensation for aggrieved party. The courts can award nominal damages, punitive damages, and general damages depending on the circumstances of the lawsuit.
- Issuing court orders- The court can give an order forcing the breaching party to fulfil its obligations. This is usually the case for partial or minor violations