In the past two months, we’ve discussed why you should write out your contract and the elements your written contract must have to be valid. This month, we’re dealing with the reason for that advice: It’s so you have somewhere to turn when someone fails to follow your agreement.
A breach of contract occurs when one party fails to perform a material term of the contract. According to Black’s Law Dictionary (11th ed. 2019), a material term is “[a] contractual provision dealing with a significant issue such as subject matter, price, payment, quantity, quality, duration, or the work to be done.” In plain English, it simply means one of the parties to a contract has failed to go along with what you agreed upon.
There are four different types of breaches when it comes to contracts:
- substantial performance;
- material breach;
- minor breach; and
- anticipatory repudiation.
Substantial Performance: Most Provisions Have Been Followed
A substantial performance breach is when one party has not completely performed under the terms of a contract, but the performance is so close to fulfilling contractual expectations that it would be unfair to deny the breaching party payment. The non-breaching party still has a right to recover any monetary damages suffered as a result of the breaching party failing to render full and complete performance.
Material Breach: Failure to Meet Terms
A material breach is one that obliterates the very essence or root of the original agreement between the parties. In other words, the non-breaching party received a result that is significantly different than what was specified in the contract. In this situation, the non-breaching party has likely incurred significant losses.
Minor Breach: An Insignificant Violation
A minor breach does not affect the root of the original agreement. This means that the non-breaching party still received what was specified in the contract, however, the breaching party failed to fulfill some part of their obligation. Typically, unless the non-breaching party can prove the minor breach caused a financial loss, a legal remedy will not be available.
Anticipatory Breach: A Forewarned Withdrawal
An anticipatory breach is when a party to a contract notifies the other party that they do not intend to perform as promised in the contract prior to the time for performance. While this may mean the non-breaching party has not had to make a substantial contribution under the contract either, it may still cause losses because that party was counting on its terms being followed and now has to try to make new arrangements.
Remedies for Breach of Contract
What are your options when the other party breaches a contract? One avenue is to sue for damages that were directly caused by the breach. The non-breaching party can typically recover the sum or value that they would have received had the contract been fully performed by the breaching party.
Another option is to demand specific performance of the contract. This is when a court orders the breaching party to perform as specified by the contract. This outcome is typical when monetary damages are inadequate to compensate the non-breaching party.
A third option is to ask a court to cancel the contract and then sue the breaching party for restitution. Restitution seeks to place the non-breaching party back to the position they were in prior to entering into the contract rather than compensating them for lost profits. While this may seem like it would result in more compensation, a court will only cancel a contract on rare occasions in certain circumstances. It’s much easier to achieve one of the previous remedies.
We’re almost done learning the basics of contract law—but don’t miss our fourth blog in the serious. Next month we’ll cover the Statute of Frauds.
If you lost out when a contract was breached, Grewal Law PLLC can help you fight for justice. Call us at (888) 211-5798 for a free consultation.