Contracts can be challenging to understand, particularly when changes to the internal or external environment lead to a change in cooperation. You may decide not to follow through on an obligation you agreed to as an employee. Or, as an employer, you may have discovered that a party has failed to fulfill their contract agreements. But, from a legal standpoint, what do these actions (or lack thereof) mean? Understanding the four common types of contract breaches is important whether you are an employee or a business owner.
Four Types of Contract Breach
Contract breaches are serious offenses that may result in high-cost legal actions. There might be additional legal repercussions if the contract was with a government agency. Sometimes a person or business is unsure whether they have broken a contract or not. Here are four types of contract breaches that could have an impact on your business.
Minor Breach of Contract
Also known as an Immaterial Breach of Contract or a Partial Breach of Contract, it refers to situations in which the other party eventually receives the contract’s deliverable. Still, the party in breach did not meet some of its obligations.
In these situations, the party who suffered the breach might only be able to seek legal recourse if they can demonstrate that it led to monetary losses. For example, a late delivery might only be subject to redress if the party who violated the agreement can demonstrate that the delay affected its ability to pay.
Material Breach of Contract
Whenever one party to a contract receives considerably less benefit or considerably different result than what was specified in the contract, this is considered a material breach. Material breaches can be defined as either a failure to perform the obligations stated in the contract or a failure to perform the obligations on time. If a material breach occurs, the other party can sue for compensation for the damage it caused.
Anticipatory Breach of Contract
A breach is not required for the responsible party to be held liable. When one party to a contract gives notice that they will not fulfill their duty under the contract, this is called an “Anticipatory Breach,” even though no actual breach has occurred.
However, such a claim could also be based on actions that suggest one of the parties doesn’t intend to or will not be able to deliver. This can happen if the breaching party explicitly informs the other party that they will not fulfill their obligations.
Actual Breach of Contract
A breach that has already occurred is called an Actual Breach of Contract. When a party breaches an agreement, they either fail to fulfill their obligations by the due date or perform those obligations in an incomplete or otherwise unacceptable way.
When there is a breach, the other party can seek various remedies. These include compensatory damages to cover any direct economic losses resulting from the breach and consequential losses, which are indirect losses resulting from the breach that exceed the contract’s face value.
Knowing the four categories of contract breach will help you pursue the appropriate legal remedy whether you have violated a contract, suspect that you might, or want to take legal action against someone who has. Consult with employment lawyers about how to proceed after a breach of contract.