Breach of contract performance refers to when one of the parties involved in an agreement does not follow through on its obligations. When two individuals or companies enter into a contract, they each agree to perform some kind of action. If either party does not perform that action, it is considered breaching the agreement or breaking the agreement.

What Is a Contract?

Contracts are promises that are legally binding. The party on either side of the contract can enforce these types of agreements. Every contract needs a few basic elements in order to be valid and enforceable. These include:

  • Offer
  • Acceptance
  • Promise of performance
  • Capacity.

Before any agreement is formed, one party has to offer to enter into the agreement with the other. Then, the other party has to accept that offer. This agreement is surrounding some kind of performance.

For example, if you go into a jewelry store and you see a ring for sale for $500, the store is offering to give you the ring in exchange for $500. If you tell the salesperson that you agree to pay the $500 for the ring, you've accepted his or her offer. The promise of performance here, also called the consideration in contract law, is the action of the salesperson giving you the ring and you giving the salesperson $500.

Capacity in contract law simply refers to the ability of each party to fulfill the contract. Certain persons, such as minors, are not considered capable of entering into a legal agreement.

Contract Types

Contracts are used every day in many different ways. Technically, anytime you buy a product from a store, you enter into a type of contract. We usually don't think we're forming a legal agreement until we're signing on a dotted line.

Here are some examples of common contracts:

  • Purchase agreements
  • Real estate purchases
  • Leases
  • Sales contracts
  • Service contracts
  • Employment contracts
  • Independent contractor agreements
  • Loan agreements
  • Promissory notes.

What Is a Breach of Contract?

If one of the parties involved in the contract fails to meet its obligations specified in the agreement, then that party has breached the contract. This can happen if:

  • A deadline isn't met
  • The action doesn't happen at all
  • The performance isn't according to certain terms laid out in the contract.

When one party breaches the contract, but the other party upholds its end of the agreement, the nonbreaching party has a right to pursue legal action against the breaching party. The party that performed its part of the contract may actually be able to collect damages.

Contract breach can also happen when one of the parties break one of the rules of the contract. Some agreements may specify in their terms and conditions that certain actions are prohibited, so if a party does one of those actions, it is breaching the contract. Even if one party somehow keeps the other from fulfilling its end of the agreement, the contract is considered breached.

Material and Immaterial Breaches

Not all breaches are equal. There are different levels of a breach of contract, according to contract law. Material breaches of contract are more serious that immaterial breaches.

A material breach occurs when one party completely fails to perform its contractual obligation. If someone purchases goods from a company, and the goods are never delivered, that would be considered a material breach. If the goods are delivered, but they are a day late, that would be considered an immaterial breach.

Whether a breach is deemed material or immaterial also depends on the language of the contract. If the purchase contract for the previously mentioned goods specifically stated that they must be delivered by a certain date, the late delivery could be viewed as a material breach.

The injured party, or the nonbreaching party, is more likely to be able to collect damages in the event of a material breach rather than an immaterial one. The nonbreaching party is also relieved of any obligations it had under the contract when the other party breaches.

Substantial Performance

In some cases, especially in long-term contracts, one party will follow through with the majority of its contract obligations but fails in one aspect. Consider a construction company that finishes an entire building but fails to complete it by the deadline specified in the contract with its client. Substantial performance prevents the client from winning an unfair amount of damages in a suit against the construction company for a breach of contract.

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