What Happens if You Break a Contract: What You Need to Know
What happens if you break a contract? Breach of contract occurs when a party fails to fulfill any of the obligations specified in the contract.3 min read
2. Types of Breach of Contract
3. Getting Out of a Contract
Updated November 18, 2020:
What happens if you break a contract? This is also known as a "breach of contract," which occurs when a party fails to fulfill any of the obligations specified in the contract without a lawful excuse.
Overview of a Breach of Contract
An example of a breach of contract would be when one party performs its obligations listed in the contract but the other party does not send a check for payment. The second party has thus broken its word and has breached the contract. A breach of contract occurs when an employee refuses to do an assigned task, when an employee does something that is not allowed according to the contract, or when a customer prevents the contractor from satisfying their obligation or finishing the project specified in the contract.
Enforcing a broken contract depends on how the contract was breached. For example, if the contract calls for a particular brand of oil and the mechanic used a different brand of the same quality, this would not be considered a material breach of contract. No damages were suffered. It's even possible that the person received a better product.
For a minor or nonmaterial breach of contract, the non-breaching party is entitled to actual damages. If one party misses a deadline by a few hours, this is a minor issue not worth pursuing. If one party fails to deliver an order, it will usually result in the other party taking more serious measures, such as contacting a lawyer experienced in contract law.
Once a lawyer is in place, it generally results in mediation or arbitration to reach a settlement out of court. If necessary, there is always the option of going to trial.
Types of Breach of Contract
A breach of contract can waste time and money, frustrating everyone involved. If one party moves forward and files a suit, it must meet certain criteria:
- A material breach of the contract is when the duties set in the contract were not honored. This is considered the most serious breach. It allows the injured individual or business to seek damages in court.
- A fundamental breach allows the aggrieved party to halt the performance of the contract and sue for damages. An example would be signing a lease for an apartment but later finding that another tenant already occupies the apartment. In this case, the landlord is in fundamental breach of the lease contract, allowing the person to sue for damages and make the landlord comply with the original contract.
- Anticipatory breaches allow one party to say the contract is broken when it becomes clear that the other party has no plans to perform the obligations outlined in the contract within the allotted time. For example, say that one party hires another to paint a house by a certain date. It the job has not been started as of the day before, it is impossible for the job to be completed on time.
- Minor breaches are partial breaches. An example would be hiring someone to build a business website. The job is completed but there are some errors. In this case, you cannot sue on the grounds of performance since the job was completed. There may be the option to sue for monetary damages to force the person to make the corrections.
Regardless of the type of breach of contract, to build a case worthy of going to court requires the establishment of facts. This could be difficult if it was a verbal or implied contract.
In most contract cases, you must verify that:
- The contract actually existed.
- The contract was broken.
- You lost money.
- The defendant was responsible.
Getting Out of a Contract
There are ways to break a contract and not end up in court. The most obvious example is when both parties consent to the break. If this situation occurs, it is recommended that the consent be put in writing and that it be irrevocable.
Note that it is possible to break a nonbinding agreement, such as a gentlemen's agreement or one made between friends. A contract can also be broken legally if the breach is not material and there are no resulting consequences.
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