Contracts are agreements between parties that outline the terms and conditions of their relationship.
When one party fails to fulfill its obligations under a contract, it is a breach of contract.
Types of breach
There are three types of breach.
Material Breach: A material breach occurs when one party fails to perform a significant aspect of the contract. This deprives the other party of what the contract promises them. If a contractor fails to complete construction on a house by the agreed-upon date, it constitutes a material breach.
Minor Breach: A minor breach occurs when a party fails to perform a minor aspect of the contract. While the breach is not as severe as a material breach, it still constitutes a violation of the contract terms. An example of a minor breach could be a vendor delivering goods a day later than specified.
Anticipatory Breach: An anticipatory breach occurs when one party indicates, either through words or actions, that they do not intend to fulfill their contractual obligations. This breach typically happens before the actual performance is due.
Any of these types of breaches will have consequences.
Consequences of breach
When a breach of contract occurs, the court may award damages to the non-breaching party. Damages are monetary compensation for the injured party to cover the losses resulting from the breach. These are mostly compensatory damages. Forbes states that in some cases, the court may award punitive damages in a breach of contract case.
In some cases, the non-breaching party may seek specific performance as a remedy. This means that the court compels the breaching party to fulfill their obligations.
Business contracts are often complex and understanding breaches is important for all parties.