Consequences of Breach of Contract: Everything You Need to Know
The consequences of breach of contract can be very severe, and they often involve expensive monetary damage.5 min read
Updated April 26, 2022:
The consequences of breach of contract can be very severe, and they often involve expensive monetary damage. It will depend on what type of breach occurred, and how much the injured party suffered due to the breach. A breach of contract occurs when one of the parties to the contract otherwise fails to perform under the agreement for no lawful reason.
What Does Breach of Contract Mean?
Imagine that a customer hires you to complete a job. Now imagine that you finish the job, but the customer never pays you for the work. The customer has broken your agreement, and now you don't have the money you were promised. This is an example of a breach of contract. Whether you are the owner of a small business or an individual that offers services, breach of contract is something that you should expect to occasionally face.
Contracts are used to formalize the relationship between two or more parties. Contracts will establish several conditions and obligations and can contain a variety of requirements:
- Technical requirements, such as the time needed to complete a construction project.
- Service requirements.
- Reporting or information requirements.
- Legal requirements.
- Financial requirements.
When one party to a contract fails to fulfill a requirement, a breach of contract has occurred. In small claims court, suits for breach of contract are extremely common. A breach means that the contract has been broken because the terms have not been fulfilled with no legal excuse.
In some cases, it may not be practical for the person harmed by the breach to force the other party to fulfill their contractual obligations. Instead, the damaged party may wish to pursue other consequences.
Breaches can occur when one party fails to perform their duties on time, fails to perform in the manner detailed in the contract, or does not fulfill their obligations at all. For example, if a coworker does not complete their required part of a project or if an employee engages in actions restricted by their contract, a breach has occurred.
There are several legal remedies that courts can choose when a contract has been breached, and the specific remedy can determine the amount of monetary damages that must be paid. If you entered into a contract fraudulently, for example, the court may choose to award the plaintiff monetary damages. However, this is a rare course of action. After being damaged by a breach of contract, it's best to contact an attorney to make sure you are pursuing the most beneficial legal remedy.
Default Events vs. Contract Breaches
When a contract is broken, there are a variety of consequences, including something known as a default event. Some obligations are essential to the contract, and when one of these obligations is breached, a default event has occurred. When a default event happens, the contract can be terminated. Persistent breaches and breaches of essential contract obligations will almost always result in a default event.
Different Kinds of Breaches
There are different types of breaches, which could affect what type of remedy is available to the injured party. These include the following:
- Material Breach: A material breach occurs when one of the parties to the contract fails to perform under the contract, and the injured party suffers significantly. In this case, the court will provide the greatest remedy to the injured party to make them whole again. An example of a material breach would be if one party was required to make 10 payments of $100, but only made a total of 5 payments. A lawsuit can be brought for specific performance, which if approved, will require the breaching party to continue making payments as required under the contract.
- Fundamental Breach: A fundamental breach occurs when, at the time of performance, the other party acts in a way that renders performance on your end unattainable. For example, assume you enter into a lease agreement with the owner of an apartment. But, on the day you are expected to move in, someone else is still residing in the apartment. The landlord has fundamentally breached the contract, leaving you unable to move in. Therefore, you can bring a lawsuit against the landlord and force performance under the contract. This means that the landlord will have to rent the apartment to you and force the current resident out of the apartment.
- Anticipatory Breach: Anticipatory breach occurs when it is anticipated that the other party will not complete the job in time. For example, let’s assume that you hired a painter to paint your home by July 1. On June 30, you can bring a lawsuit against the painter for anticipatory breach because it is highly unlikely that the painter will complete the job by July 1.
- Minor Breach: A minor breach is a partial breach of contract. A partial breach occurs when a minimal portion of performance isn’t satisfied. For example, let’s assume that you were supposed to receive 50 applies from a farmer, but he only delivered 49 apples. This wouldn’t constitute a material breach, but rather a minor breach. While you can’t sue for damages, you could sue for monetary damages or force the farmer to deliver the one remaining apple to you.
Small Businesses and Breach of Contract
Both individuals and small businesses can be seriously harmed by a breach of contract. In addition to causing a great deal of frustration, breaches of contract can waste time, effort, and money. However, not all breaches are the same: some breaches are more serious than others. There are several ways that a breach of contract can occur, and many breaches will be minor.
A material breach is the most serious form of breach of contract. In these cases, someone has neglected to uphold their responsibilities as laid out in the contract. When this occurs, the injured party can pursue damages in a civil suit. When a contractor completes a project but isn't paid, this is considered a material breach.
A fundamental breach is another type of breach of contract that has the potential to end in a lawsuit. The party damaged by a fundamental breach is allowed to immediately end a contract and file a lawsuit. If, for instance, you have leased an apartment and the landlord moved someone into the apartment before you, a fundamental breach has occurred.
When it becomes clear that one party will not be able to fulfill their duties within the time required by the contract, it is considered an anticipatory breach. For example, if you hire someone to paint your home and they don't start the job until the day before it is to be completed, then you might be able to pursue damages because it would be impossible for the project to be completed by the contractual deadline.
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