If you own a business and don’t know what constitutes a breach of contract, you could be setting yourself up for legal trouble.
In this post, the trusted Denver contract lawyers at Sequoia Legal break down the definition of a contract breach, provide real-life examples, and delve into various types of breaches, from minor infractions to major breaches.
Whether you're a business owner or you’re simply interested in learning more about contractual obligations, the valuable insights of our knowledgeable legal professionals will help you gain a better understanding.
What Is a Breach of Contract?
A breach of contract is any violation of the terms or conditions agreed upon in a legally binding agreement. It occurs when one or more parties fail to fulfill their obligations as outlined in the contract.
In the event of a breach, the injured party (the one who held up their end of the contract) may be entitled to seek legal remedies, including compensatory damages or specific performance, depending on the circumstances and the terms of the contract.
For the sake of illustration, here are some commonplace examples of contract breaches:
- Not finishing tasks outlined in the contract on time.
- Not paying as per the terms of the contract once work 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.
A breach of contract can take many different forms, depending on the nature and language of the contract.
Elements of a Contract Breach
To prove a breach of contract, you must demonstrate the following:
- A legally binding contract was drawn up.
- You fulfilled your part of the contract.
- The defendant failed to fulfill their part of the contract.
- You suffered a loss as a result of the breach.
If you hope to make a successful case for breach of contract, you must have credible and compelling evidence of each of the four elements listed above.
Common Causes of Breach of Contract
Any number of factors can result in a breach of contract. The following are some of the most common causes:
- Reliance on Third Parties: When one party depends on the performance of a third-party agent to fulfill their obligations, any failure or delay by that agent can result in a breach.
- Poor Communication: Inadequate or unclear communication between the parties involved can lead to misunderstandings, misinterpretations, and, ultimately, a breach of contract.
- Lack of a Contract-Tracking System: Without an effective contract-tracking system in place, important dates, deadlines, and obligations may be overlooked or forgotten, increasing the risk of a breach.
Addressing these potential causes and implementing measures to avoid them can help reduce the likelihood of a breach and ensure smooth contract performance.
Types of Contract Breaches
Not every breach of contract is the same. Some are large and consequential, while others are small and somewhat less impactful. The type that occurs will dictate what recourse the violated parties have available.
If you’re dealing with business contract issues and need legal advice, contact the corporate and commercial business law attorneys at Sequoia Legal.
1. Material Breach of Contract
A breach of contract is considered “material” when there’s a failure to act in accordance with one or more of the major terms specified. The material terms of a contract are those that defeat the purpose of the contract if not performed.
For instance, failing to produce any product as outlined by the deal or pay the agreed-upon price for the delivered product would be considered a breach of contract. Another example would be delivering the wrong product.
2. Minor Breach of Contract
A minor breach of contract is just that — one party not fulfilling a small portion of the contract. This type of violation is also sometimes called a partial or immaterial breach of a contract.
The distinction between minor and material breaches determines the remedies available. No remedy is usually available with a minor breach unless the aggrieved party can show economic loss stemming from the breach.
For example, 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 constitute a minor breach. The other party can’t sue for breach of contract unless they can show that the late delivery caused economic harm.
3. Anticipatory Breach of Contract
Anticipatory breach of contract occurs when one party clearly indicates their intention not to fulfill their contractual obligations before the agreed-upon performance date. This violation occurs before the actual breach takes place, based on the party's explicit statement or actions.
Anticipatory breaches of contract can have significant implications on the contractual relationship and may require legal intervention to resolve the dispute. The non-breaching party can treat the anticipation of non-performance as an actual breach and pursue remedies available under the contract or in court.
4. Actual Breach of Contract
An actual breach of contract is when a true breach occurs rather than being anticipated. In other words, some portions of the contract terms haven’t 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.
5. Mutual Breach of Contract
Mutual contract breach is characterized by situations in which both parties involved in a contractual agreement fail to uphold their obligations as agreed upon. When a breach occurs despite a mutual agreement, it can lead to disputes and potential legal consequences.
Resolving a mutual contract breach typically involves negotiation, mediation, or legal action to address the violation and its impacts on the respective parties.
Legal Breach of Contract Examples
The following are some real-world examples that demonstrate each type of contract breach.
You hire a catering company to provide food for a party at your house. However, the employee you speak to writes down the wrong date, and the caterers never show up. As a result, you have to go out and buy the food yourself.
You ask your landscaping company to have your lawn mowed three hours before your guests arrive for your party. Due to a rain delay, it takes a bit longer than expected, and your landscaper finishes the project one hour before your guests arrive.
The entertainer you hired for the party calls you and says they’ll be 40 minutes late to set up, but they still think they can get everything ready before the guests arrive. In this scenario, you could then tell them that the deal is off due to their anticipatory breach.
Two parties enter into a sales agreement in which the buyer agrees to purchase a specific product at an agreed-upon price, and the seller agrees to deliver the product within a certain timeframe. Both parties fail to fulfill their obligations, as the buyer doesn’t provide full payment, and the seller doesn’t deliver the product on time.
Preventing and Resolving Contract Breaches
It’s important to keep certain factors in mind to ensure the fulfillment of obligations and maintain contractual integrity.
1. Clarity of Terms
Make sure all new contracts clearly outline obligations, expectations, and potential remedies to minimize misunderstandings and disputes. Clear and comprehensive contractual terms provide a solid foundation for effective prevention and resolution of issues.
2. Detailed Expectations
Preventing breaches requires managing the expectations of the parties involved. All parties should have a clear understanding of their roles, responsibilities, and obligations within the legal agreement. Make it a point to communicate openly, set realistic expectations, and discuss potential complications in advance.
A fraud defense can be invoked if one party engages in fraudulent activities that deceive the injured party. Fraudulent activity may include false representations, concealment of material facts, or intentional misstatements.
Generally permitted in contract law, the fraud defense can be employed to address the breach and hold the responsible party accountable in contracts between two or more parties.
Both parties involved in a contract must have the mental capacity to enter into a legally binding agreement. For instance, minors or those who have been declared mentally incompetent by a court lack the capacity to enter into contracts under specific circumstances.
Addressing capacity issues is vital for preventing and resolving breaches resulting from a lack of ability to enact the terms of a contract.
If a contract requires one or more parties to engage in illegal activities, it isn’t enforceable under contract law. For instance, if the terms specify that one party must defraud customers to save money, the promised obligations cannot be legally pursued.
6. Mutual Mistake
Mutual material mistake can occur when both parties misunderstand an aspect of the contract. However, complications arise when only one party commits an error. If a mistake occurs due to negligent or willful behavior, and a breach results, remedying the situation calls for careful analysis of the circumstances and an appropriate resolution for one or both parties.
It’s crucial to ensure that one party isn’t coerced or forced into a contract under threat. If a contract is formed under such circumstances, it may be considered invalid or voidable.
The injured party may also have legal recourse, including seeking punitive damages, as duress is a valid legal excuse in contract lawsuits where a breach has occurred due to undue pressure or coercion.
8. Unclean Hands
The "unclean hands" defense can be invoked when the party being accused of the breach is able to show that the other party engaged in some form of wrongdoing while carrying out the stipulations of the contract.
Such a defense highlights the importance of ethical conduct and proper contract management to prevent and resolve breaches effectively.
9. Statute of Frauds
The Statute of Frauds is a rule that says certain contracts must be in writing to be considered valid, such as leases for terms longer than a year or the sale of real property.
If a contract subject to the Statute of Frauds lacks written documentation, it may not be enforceable. As such, it’s essential for both parties to meet all key requirements to ensure that a legally binding contract is in effect.
10. Unconscionable Contract
If a court determines that the terms of a contract heavily favor one side to the point of indicating abuse or fraud, it may be deemed unconscionable. In such cases, the innocent party may have recourse, including having the contract voided or claiming compensatory damages.
Can You Sue for Breach of Contract?
When a breach of contract occurs, you may have the right to sue the party responsible for the violation.
Initiating a lawsuit for breach of contract allows you to seek legal remedies and/or enforce the terms of the agreement. Depending on the specific circumstances and the damages suffered, you may be entitled to various forms of compensation, such as compensatory damages, specific performance, or even punitive damages.
It’s recommended that you consult a qualified legal professional to evaluate the strength of your claim and determine the best course of action.
The Components of a Breach of Contract Claim
To win a breach of contract lawsuit, you must be able to establish several key points:
- The existence of a legally binding contract.
- That you performed your obligations under the contract in full.
- That the defendant failed to honor their side of the contract.
- That you suffered economic harm because of the breach.
Different types of evidence are generally necessary to establish each one of these points and should be addressed separately.
Proved Contract Existence
While it’s easy enough to provide proof of a written contract, not all contracts are in writing — there are oral contracts where two people agree to a deal and shake hands on it.
A legally binding contract merely requires an offer and an acceptance. For instance, you might offer your neighbor $20 to shovel the snow off your sidewalk. If they say, “I accept,” you’d have a legally binding contract.
In order to be binding, the contract must feature “consideration,” or something of value associated with the deal. Each side needs to have consideration — one gets money, and the other gets clear sidewalks. Without consideration, the contract is just a gift or a promise to do something.
Substantial Performance of Your Obligations
To validate your claim, you must show that you’ve substantially performed your obligations per the terms of the contract. “Substantial performance” sets a standard for the minimum amount of work that must be done to uphold a contract. If you can prove substantial performance, the other side will be legally obligated to hold up their end of the contract.
Proved Contractual Breach by the Other Party
Next, you’ll need to demonstrate that the other side failed to perform their part of the contract. For example, you might show that no payment was made after your substantial performance of your obligations, that the wrong product was delivered, or that the correct product was delivered late.
Proved Harm in Breach of Contract
Although proving harm in breach of contract cases is usually fairly straightforward, there are instances where it can be complex. For example, when supplies aren’t delivered on time, it can be difficult to quantify the resulting financial losses.
Proving harm becomes even more challenging in cases where the breach has no tangible impact on the affected party's economic position, such as when delayed delivery has no obvious economic consequences. It’s important to consider both financial and material impact when assessing the harm caused by a breach of contract.
Handle Contract Breaches Confidently with Sequoia Legal
Breach of contract is an extremely nuanced area of law that requires a clear understanding of the elements of a contract and the conditions of various types of breaches. Individuals and businesses can navigate this rocky terrain confidently by partnering with the experienced business contract lawyers at Sequoia Legal.
Don’t hesitate to reach out to our firm if you need assistance with a contract dispute or other legal matters. Our dedicated legal professionals are here to offer you the guidance and support you need. Contact us today to schedule a consultation and protect your contractual rights.