In today’s world, contracts are entered into every day — whether they be small contracts such as signing up for a gym membership or billion-dollar contracts like Elon Musk buying Twitter.
No matter how much money a contract is worth — or not worth — every contract must contain the same elements to be valid, and every contract is covered by the same laws.
Although obviously, a gym membership contract involves a little less paper than buying Twitter, the same concepts can apply. One feature they share is that every contract that is entered into can be breached or broken.
This article will discuss the breach of contract definition, types of breach of contract, and what constitutes a breach of contract. Sequoia Legal team will explore the various remedies the parties have for an actual breach of contract and the compensation for breach of contract.
To prove the breach of contract elements, you would have to demonstrate the following:
- There was a legally binding contract
- Your part of the contract was fulfilled
- The defendant did not fulfill their part of the contract
- You suffered actual damages as a result of the breach
In order for you to be successful in proving a breach of contract, you will need to have competent and credible evidence of each of the four elements above.
What Does Breach of Contract Mean?
A breach of contract occurs when one party fails to adhere to all or some of the terms that were agreed to between the parties and written into the contract.
Here are some breach of contract examples cases that demonstrate a basic breach with a basic contract:
- Not finishing tasks outlined in the contract on time, as determined by the contract
- Not paying as per the terms of the contract once everything is completed
- Not providing services or products that are up to the standards in the contract
- Only completing part of the task outlined in the contract
What breaching the contract looks like will depend upon what issues the contract covers.
Types of Breach of Contract
Not every breach of contract is the same. Some breaches are large and consequential, and some are small. The breach types that occur will dictate what the parties can do and the remedies that they have available.
If you have business contract issues and need legal advice, contact the Colorado corporate and commercial business law attorneys at Sequoia Legal.
Material Breach of Contract
A breach of contract is considered “material” when there is a failure to act in accordance with a major term of the agreed-upon contract. The material terms of a contract are those that, if not performed, defeats the purpose of the contract.
A material breach of contract could be something like failing to produce any product as outlined by the deal or failing to pay the agreed-upon price for the delivered product. Another example of a material breach would be the delivery of the wrong product.
Minor Breach of Contracts
A minor breach of contract is just that — one party not fulfilling a small portion of the contract. It’s also sometimes called a partial breach or an immaterial breach of a contract.
The distinction between a minor breach and a material breach restricts the remedies available. With a minor breach, unless the aggrieved party can show economic damages from the minor breach, then a remedy is usually not available.
For instance, suppose that a party to a contract delivered all of the product they were contracted for but did so three days later than the date stipulated in the contract. This delay would be a minor breach. The other party cannot sue for breach of contract unless they can show there was economic harm caused by the late delivery.
Anticipatory Breach of Contract
An anticipatory breach of contract is when one party notifies the other that they cannot perform all or some portion of the agreed-upon terms of the deal. What makes anticipatory breach lawsuits tricky is the response the non-breaching party has to the anticipatory breach.
For example, a supplier may tell a factory that the supplier can’t deliver needed materials for another two weeks, which would be a breach of the contract. What happens if the factory owner then goes out and purchases the supplies somewhere else at a higher price?
This example demonstrates why having competent, experienced counsel who knows Colorado contract law is so important.
Actual Breach of Contract
An actual breach of contract is a breach that has occurred. It’s not anticipatory. Some portions of the contract terms have not been fulfilled on time or in the manner the contract specifies.
Once an actual breach has been established, the aggrieved party can decide what to do. They have many options, ranging from continuing with the contract despite the breach to filing a lawsuit seeking restitution for damages caused by the breach.
Legal Breach of Contract Examples
The following are some real-world examples that demonstrate each kind of breach of contract:
Material Breach of Contract Example
Suppose that you hire a catering company to cater a party at your house. Due to a mistake on behalf of the catering company, they wrote down the wrong date of the event and never showed up. You had to go out and buy the food yourself.
Minor Breach of Contract Example
You asked your landscaping company to have your lawn mowed three hours before your guests arrive for the party. It took a bit longer than expected due to a rain delay, and your landscaper finished the project one hour before your guests arrived.
Anticipatory Breach of Contract Example
The caterer calls you and says that they will be 40 minutes late to set up for the party, but they still think they can get everything ready before the guests arrive. You can then tell them that the deal is off due to their anticipatory breach.
The Elements of a Breach of Contract Claim
The breach of contract elements that you have to prove to win a breach of contract lawsuit is fairly straightforward:
- The existence of a legally binding contract
- That you performed, in full, your obligations under the contract
- That the defendant did not fulfill their side of the contract
- That because of the breach, you suffered economic damages
Certain types of evidence are necessary to establish each one of these elements and should be addressed separately.
How Do I Prove that a Contract Exists?
Although some contracts can be hundreds of pages long, a valid, legally binding contract can be very simple. It doesn’t even have to be in writing. Many contracts are oral contracts where two people agree to a deal and shake hands on it.
A legally binding contract requires an offer and an acceptance. “I will shovel snow off your sidewalk for $20” is an offer. If the homeowner says, “I accept,” that’s a legally binding contract.
Finally, in order to be binding, the contract has to have “consideration” or something of value associated with the deal. Each side should have consideration, i.e., one gets money, the other gets clear sidewalks. Without consideration, the contract is just a promise to do something or a gift.
Prove that You Performed Your Obligations
You have to demonstrate that you have substantially performed your obligations under the contract. If there is at least substantial performance, then the other side should pay.
The next step is to demonstrate that the other side failed to perform their part of the contract. For example, demonstrate that no payment was made after your substantial performance of your obligations. Or demonstrate that the wrong product was delivered, or the correct product was delivered late.
Prove the Breach Caused Economic Damages
Although this sounds fairly straightforward, in some cases, it is not. It’s easy to prove damages, for instance, when the supplies weren’t delivered, and the factory had to purchase them elsewhere for a higher price. The economic damage was the difference between the paid contract price and the higher price.
However, some breaches may not cause economic damages. Let’s say the supplies were delivered late, but that lateness didn’t affect you at all because you weren’t going to use them for several more weeks anyway. You can claim a breach in the contract, but the breach was immaterial and didn’t cause you harm.
Breach of Contract Defenses
The defenses to breach of contract depend upon what type of contract it is, the terms of the deal, and the actions of the parties. It could be as simple as “I delivered the supplies they asked for, and they haven’t paid for them.” But it also could be extremely complicated, especially when it’s a complex deal with a lot of moving parts.
These defenses would be used by the party that has allegedly breached the contract and not fulfilled their obligations for some reason. Here are some common defenses to breach of contract:
The fraud defense can be used if the other party engaged in some type of fraudulent activity that misled the breaching party.
A party has to have the mental capacity to enter into a contract. For example, a minor cannot enter into a contract, nor can someone who has been deemed mentally incompetent by a court.
If the contract is to do something illegal, then it is not enforceable. You can’t sue your getaway driver for not showing up at the bank you were robbing.
Sometimes, both sides in a deal misunderstand something about the contract, and both make a mistake. It gets tricky, though, when only one side makes a mistake.
A party cannot be forced into a contract under threat or duress.
This defense can be used when both parties engaged in some type of wrongdoing in performing the contract’s stipulations.
Statute of Frauds
This phrase is a term used for the rule that certain contracts, by law, must be in writing. For example, a lease for a term of more than one year or the sale of real property.
A court can find a contract is unconscionable if it appears that the contract terms are so much more favorable to one side that there appears to be some type of abuse or fraud involved.
Again, each case is different given the different contracts and the facts of what happened, so what defenses are available can differ greatly. The Denver-based Sequoia Legal can help you negotiate your business contracts, mergers, and acquisitions.
Contact Sequoia Legal Today
Some business contracts can be extremely complicated and have many areas where, if not thoroughly thought through and properly drafted, problems could arise. But with knowledgeable and skilled counsel, you can make sure that your deals will be rock solid.
The business lawyers at Sequoia Legal have been successfully representing large and small businesses in the greater Denver region and throughout Colorado for years. We pride ourselves on providing state-of-the-art legal advice and top-notch customer service.
Let us help you with your business contracts to ensure your deal runs smoothly and without undue trouble. Contact us for an appointment at any time.