Anything can happen in the business world. Even if both parties try their best to deliver on their contracts, more than often, breaches of contract will occur. The reasons include delays, financial difficulties, and a plethora of other unexpected events.
Furthermore, entering any kind of legal contract is always a risky endeavor. So it’s only a matter of time before you run into a scenario where one party doesn’t deliver on their end of the contract.
And even though breaches cost you time and money, legal remedies are available. Let’s take a closer look at the types of breaches of contract and what you can do about them.
Anticipatory breach of contract
This type of breach happens when a breaching party indicates or states in advance that they won’t fulfill their contractual obligations. It doesn’t necessarily mean that the breach has to be explicitly stated by a breaching party. It can also occur when the non-breaching party recognizes actions that imply the other participant will fail to uphold or is unable to deliver on their part of the contract.
Try to imagine a scenario in which a supplier and a customer have signed a contract. In the contract, it’s written that the supplier must deliver 500 hoodies to the customer for their online merchandise shop. Next, the customer reads the supplier’s blog post. The blog post says that the supplier is indefinitely shifting all of their attention to another customer. This can be someone who ordered a double amount of hoodies, for instance. If the blog post is authentic, the customer can safely assume that the anticipatory breach could occur.
If you are on the non-breaching party, you have a legal justification to terminate the contract and sue for damages, even though the actual breach hasn’t yet occurred.
Actual breach of contract
The actual breach of contract has occurred if the breaching party refuses to fulfill their contractual obligations. It can happen if the duties haven’t been performed on a satisfactory level or haven’t been done by their due date.
For instance, the supplier from the previous scenario has agreed to deliver 500 hoodies to the customer. The contract in this example has a clearly defined deadline. If the supplier fails to deliver the hoodies by the deadline, it means that they have committed an actual breach of contract.
Again, you are legally entitled to pursue action for any damages that have occurred as a result of the breach of contract. You can seek compensation to cover the direct financial losses. Alternatively, you can claim consequential losses that surpass the value of the actual contract.
Material breach of contract
A material breach of contract happens when the results differ significantly or offer less benefit than specified by the terms agreed upon. If one party fails to deliver on their end of the contract, the non-breaching party doesn’t need to uphold their end of the deal.
Let’s say a company contracted a web designer. The web designer promised to design an animated, colorful website for their business. After a month, the company finds out that the web designer delivered something completely different. For example, a website composed mostly of text on white backgrounds.
In this case, the company is the innocent party. As a result, they can ask for the damages for the breach that has occurred, helping them recover their losses.
Minor breach of contract
Also known as a partial or immaterial breach, a minor breach can present a bigger problem than the name implies. If the breachable party fulfilled a part of the contract but failed to fulfill a part of their obligations, it means that a minor breach has occurred.
Consider the previously mentioned scenario about delivering hoodies to a customer. The supplier delivered the hoodies to the customers two days after their agreed-upon deadline. This failure to meet the deadline can be considered a minor breach of contract.
As a damaged party, you can use a legal remedy and offer proof that the breach resulted in financial losses. If the breach didn’t cause any monetary losses, the damages won’t be awarded.
Why does knowing this matter?
Unfortunately, even the best contracts can end up being breached as the actions of the other party are beyond your control. However, what is under your control is the ability to minimize future risks to your business.
Crafting new contracts will be a lot easier if you have an idea of the types of breaches you can expect. This means clearly identifying terms, conditions, and clauses that mitigate potential uncertainties and vulnerabilities.
Equally important is becoming aware of all the available legal remedies. You can use them to reclaim your losses if you ever experience a breach. When navigating the often overwhelming legal landscape, this can help you stay focused on your mission.