Breach Of Contracts: Everything You Need to Know
Breach of contracts is the legal term for a situation when one party fails to honor the terms of a legal agreement. 3 min read updated on January 01, 2024
Breach of contracts is the legal term for a situation when one party fails to honor the terms of a legal agreement. This can occur because of unforeseen delays, financial issues, and other unexpected events. For example, if you complete a job as a contractor but the employer fails to pay as agreed, he or she is in breach of contract. Breach of contract is one of the most common cases brought up in small claims courts.
What Is a Breach of Contract?
When you enter into a business contract, you and the other party or parties are legally bound to fulfill the obligations therein. When one party fails to do so without a lawful excuse, the contract in question has been breached.
A breach can occur if the terms of the contract are not met on time, are not in accordance with the spelled-out requirements, or are not met at all. If only one party breaches the contract, the other party is entitled to financial compensation. The breach can be categorized by the legal system as either material or immaterial, which affects how the situation will be remedied by the court system.
What Counts as a Breach of Contract?
If a delivery was contracted for Thursday night and arrived Friday morning, this would be considered an immaterial breach by the court, meaning the late delivery did not cause damages and thus does not result in monetary compensation. However, if the contract explicitly states that time is of the essence and that the product must arrive by Thursday night, this would be considered a material breach. In this scenario, the party who purchased the product would likely be reimbursed for the cost.
When a breach of contract suit is brought to court, the judge will ask the plaintiff the following:
- Whether a contract existed
- The terms of the contract
- Whether the contract in question was ever modified
- Whether the breach in question occurred as claimed
- If the breach was material to the contract
- If the party who allegedly breached the contract had a legally admissible reason for doing so
- The extent of damages caused by the breach, if any
What Happens After a Contract Is Breached?
A breach of contract can cause wasted time and money, as well as frustration for the individuals and small businesses involved. When a contract breach occurs, one or both parties may take legal action to recover financial damages or have the contract terms enforced. Informal resolution is often the best route. If that doesn't work, you may have to file a lawsuit. Depending on the state, you may be able to file in small claims court. This is typically the appropriate venue when the dollar amount in question is below $7,500.
You'll need to have evidence of the breach to file a lawsuit. This can be challenging in the case of an implied or verbal contract. You must prove the following:
- The contract existed.
- A breach occurred.
- You suffered financial damage as a result.
- Another party to the contract was at fault for the breach.
What Is a Material Breach?
A material breach means that the party in question failed to fulfill his or her contractual duties. If this has occurred, the party injured by the breach can seek damages in court. A material breach has occurred if the person receives a product or service substantially different than was agreed upon in the contract.
In the case of a material breach, the party who did not breach the contract is no longer bound by its terms and has a right to remedies. Courts use these questions to determine whether a breach was material:
- Did the non-breaching party benefit from the contract?
- Is it possible to adequately compensate the non-breaching party for damages?
- Did the breaching party fulfill any part of the contract?
- Was the breaching party subject to undue hardship?
- Did the breaching party willfully or negligently breach the contract?
- Is the breaching party likely to fulfill the remainder of the contract?
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