What is a breach of contract?
It is not uncommon for contract disputes to take place in businesses simply because each party has a different interpretation of what is outlined in the commercial agreement. Business agreements are the foundation of all commerce. Without contracts, there is no business. This is why it is important to truly understand your commercial contracts, identify the different types of contract breaches and know the consequences of a contract breach.
What is classed as a breach of contract?
A breach of contract is when someone does not adhere to a term outlined in that contract. When someone has breached a contract, you can choose to affirm the contract, or terminate the contract and recover and loses or damages.
The most common forms of breaches of contract are:
- Minor – a partial breach. An example of this may be if you have contracted someone to create your business website. Although the work is completed for you by the deadline, there are a few errors. You may not be able to sue for actual performance, as they met the deadline, but you do have the option to sue for monetary damages or have the ability to force them to make corrections.
- Fundamental – a breach so serious it allows the other party to not only sue for damages but also terminate the performance of the agreement. As an example, where you have signed a new office lease, but you find that someone else is still using the space when you are expecting to move in. This is a fundamental breach of the lease contract. Here, you could sue for damages and to make the landlord provide the space to you under the original agreement.
- Material – a failure of either party to perform one’s duties as set out in the contract and is considered one of the most serious. If a serious clause has been breached it allows the claimant to seek damages. For example, if someone did not pay a painter after they had painted and completed the job even though it was completed satisfactorily, he/she can then seek damages.
- Anticipatory breach – when one person is able to say the contract is broken before it is actually breached. It becomes clear that other parties to the contract will not execute their end of the deal within a specific timeframe, therefore the breach can be anticipated.
Penalty clauses may arise in various contracts which will already outline the monetary punishment for the breach of a contract term. Be aware of and fully understand these penalty clauses before signing a contract as they can be quite harsh.
Penalties for a breached contract
The consequences of a breach of contract will depend on the type of term which has been broken and the impact it has had on the other party.
Some of the common remedies of a general contract breach could include:
- Restitution. One party pays the other back.
- Punitive damages. Money that is paid by the party who breached the contract.
- Compensatory damages. One party pays the other a sum that is equal to what was stated in the contract.
- Liquidated damages. Money that both parties have agreed to pay should the contract be breached.
If you need any further details or advice relating to a breach of contract, get in touch with one of our experienced legal professionals.