What Are Types of Breach of Contract in Business Law?
Types of breach of contract in business law include the various ways an agreement between two business entities can be broken.3 min read
Types of breach of contract in business law include the various ways an agreement between two business entities can be broken. A breach can only occur if a valid contract exists.
Elements of a Valid Contract
Both written and oral contracts are valid if they include all three required elements:
- An offer of value in exchange for goods or services has been made with intention.
- The offer was accepted by the other party.
- Each party provides consideration or an item of value. If only one party provides consideration, it constitutes a gift, which is not enforceable in court.
Breach of Contract
A party breaches a contract if he or she does not complete one or more of its terms. This could include but is not limited to:
- Failure to complete the job
- Failure to provide goods or services as agreed
- Failure to pay on time
- Provision of inferior goods or services
Think of a breach of contract as a broken promise. This is one of the most common types of U.S. lawsuits. Courts offer various remedies for breach of contract. They are designed not to punish the party who has breached the contract but to return the injured party to his or her position before the breach occurred.
The aggrieved party can also ask the judge to cancel the contract. In some cases, the judge will order specific performance from the party who has breached the contract.
A partial breach occurs when some but not all of the contract terms have been performed. In this case, the injured party can sue only for actual damages. For example, if a homeowner asks for a pond with a black liner installed and instead gets a blue liner, he or she can only sue for the price difference between the liner colors. The contractor cannot be required to remove the pond and start over because the liner color does not affect the pond's function. If no difference in price exists between the liner colors, no breach has occurred.
If a party fails to perform contractual duties in a way that destroys the value of a contract, this constitutes material breach. Consider the above example. If the contractor used inferior quality plastic rather than simply a different color, the court may order that the pool be removed and the liner replaced.
In a material breach, the party who has been injured can sue for damages and may also be relieved of his or her own contractual obligations. If a contract is completely broken, it may be called a repudiatory or fundamental breach. A material breach has occurred if:
- The injured party has been deprived of benefits he or she expected to receive under the contract
- It is possible to adequately compensate that party for the lost benefits
- The breaching party will suffer forfeiture
- The breaching party is willing to complete the contract as agreed
- The behavior of the breaching party has generally been associated with good faith and fair dealing
Anticipatory Breach of Contract
This type of breach occurs when one party no longer acts in accordance with contract terms, causing the other party to believe he or she does not intend to fulfill the agreement. This impression is given by a failure to act, such as not providing an item as ordered, refusing to take payment, or otherwise indicating he or she cannot or will not fulfill the contract terms.
An injured party can sue for anticipatory breach before an actual breach occurs. For example, if you sell an item to someone and agree on a purchase price, and then that person indicates they can't come up with the money, you may be able to sue for breach of contract or sell the item to someone else.
Fundamental Breach of Contract
With this type of breach, the injured party can opt to terminate the contract and/or sue the breaching party for damages. This is a substantial breach in which a fundamental part of the contract has not been performed. In some cases, the injured party may be entitled to specific performance.
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