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.3 min read
2. Default Events vs. Contract Breaches
3. Small Businesses and Breach of Contract
Updated July 2, 2020:
The consequences of breach of contract can be very severe, and they often involve expensive monetary damage.
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.
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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