Breach of Contract Agreement: Everything You Need to Know
A breach of contract agreement occurs when one party in a contract fails to comply with the agreement.3 min read
2. Partnerships and Breach of Contract
A breach of contract agreement occurs when one party in a contract fails to comply with the agreement by indicating either that he or she has decided to ignore the contract with no intention of complying with the agreement as it was set forth between the parties or that he or she has simply chosen to not comply. Both actions result in a breach of contract.
Information About a Breach of Contract
Contracts are a complicated process and even the slightest change to the wording can result in shifts in responsibility or liability. Therefore, any time a contract is involved, legal counsel should be involved to review the contents before it is signed.
Four types of breach of contract are possible, and each has its own level of severity:
- Minor breach.
- Material breach.
- Fundamental breach.
- Anticipatory breach.
Also referred to as a partial breach, a minor breach stipulates the non-breaching party can sue for damages versus specific performances/services. For example, if a contractor hired to do a remodeling job uses a different brand of tile other than what was agreed to but it looks and acts the same, the homeowner cannot claim there is a minor breach of contract since there is no physical damage.
A material breach is more substantial and allows the affected party to sue for damages. If the result of using a different brand of tile caused immediate cracking, the homeowner would be in a position to file for compensation.
A more significant breach is the fundamental or repudiatory breach. In these cases, the non-breaching party can sue for damages and end the terms of the initial contract. Using the contractor and tile installation example, if the tile that was installed interacted with a countertop causing mold to grow and spread from room to room, this would fall under the heading of fundamental. In this case, the terms of the initial agreement were breached and significant damage to the home and to the occupant's health is the result.
With an anticipatory breach, the non-breaching party can break the contract immediately and sue for damages before the service is completed. For instance, if a contractor stops taking calls from the homeowner after the damage has occurred, the homeowner can make the breach immediately regardless of whether there are other rooms in the home to remodel.
About Resolving Issues
When a breach of contract occurs, there are two methods to encourage a resolution: arbitration and mediation. Mediation is an expedient way for the parties involved to resolve business disputes. Arbitration is another alternative option for dispute resolution. If neither mediation nor arbitration has any effect, the next step is litigation.
A breach of contract can provide remedies in the form of compensation for financial damages, solutions/remedies to address specific performance issues, restitution, or cancellation of the contract.
The most common form of remedy is providing financial damages via a payment to the non-breaching party. This remedy allows the business to move forward without loss or impediment.
This remedy is court ordered and involves the performance of duty by the breaching party. It is usually the remedy used when damages will not suffice.
Canceling the contract and restitution to the state of the contract prior to the breach to the non-breaching party is considered a fair solution.
Partnerships and Breach of Contract
In business with a partner, most likely, each partner shares in making decisions. In the event that one partner breaches the contract, it can have negative consequences such as the inability to:
- Use company funds.
- Make staffing decisions.
- Invest capital without the consent of your partner.
Procedures clarifying how a breach of contract will be handled should be included in the business's operating agreement or articles of incorporation. For example, the partner who has breached the contract may be given a certain number of days to rectify the breach.
Another example would be the partners would follow outlined procedures to vote and remove a partner who has breached a contract. If no legal agreement is in place governing how a breach is handled, resolution of the breach of contract will rely on the laws of the state.
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