Managing Partner
In business, a breach of contract can have significant financial ramifications for each party to an agreement. When your company has become the victim of a breach of contract or a counterparty has alleged that your business breached a contract, you should understand what a “breach of contract” means and what rights or obligations your company may have.
What Does It Mean to “Breach” a Contract?
The law considers a party to a contract to have “breached” the agreement when the party fails to fulfill some or all its obligations under the contract. When a breach of contract occurs, the other party or parties to the contract typically suffer financial losses, such as loss of the payment price or loss of expenses incurred to perform under the contract.
Ways That Parties Can Breach a Contract
A party can breach a contract in one of several different ways. Some of the most common types of breach of contract claims include:
- Material breach: A breach of contract becomes “material” when one party fails to perform one or more essential terms of the contract, such that the other party effectively receives something utterly different than what they bargained for. When a material breach of contract occurs, the non-breaching party no longer has to fulfill their obligations under the contract and can instead sue the breaching party for financial or equitable relief.
- Minor breach: A minor breach of contract occurs when a party fails to perform some term of an agreement, but the other party still receives the benefit of their bargain. Minor breaches typically involve failures to meet delivery deadlines, although deadlines may constitute a “major” contract term when the agreement contains a “time is of the essence” clause.
- Anticipatory breach: A party may commit an “anticipatory” breach of contract when they still have time to perform under the contract but have explicitly or implicitly indicated that they do not intend to perform. A party’s actions may indicate their intention to breach the contract, such as failing to obtain the materials needed to fulfill the contract, a business filing for Chapter 7 bankruptcy, or filing a petition to wind up and dissolve.
What Relief Can You Obtain in a Breach of Contract Claim?
A non-breaching party can obtain various types of relief in a breach of contract claim. In most cases, a breach of contract claim can provide a party with financial compensation for losses arising from the breach. Compensation can include:
- Reimbursement of the purchase price paid by the non-breaching party
- Expenses incurred by the non-breaching party to perform their obligations under the contract
- Lost profits expected from the deal
- Costs of obtaining replacement goods or services
Parties to a contract can negotiate what compensation a non-breaching party can receive in a breach of contract claim. A contract can limit what types of financial losses a party can recover in a legal claim or entitle a non-breaching party to recover legal fees and expenses incurred to pursue a breach of contract claim. When parties anticipate difficulties calculating financial losses in the event of a breach of contract, they may agree that the non-breaching party can pursue compensation in the form of “liquidated damages,” an agreed-upon financial award intended to reasonably estimate the losses from a breach of contract.
In rare cases, a non-breaching party may pursue specific performance of a contract. Contract law states that financial compensation usually can make a non-breaching party whole following a breach of contract. However, when a contract involves something that a non-breaching party cannot replace with financial compensation, they may have the right to seek a court judgment to require the breaching party to uphold their end of the bargain. Specific performance frequently arises in breaches of real estate contracts since the law considers every piece of real estate unique and irreplaceable.
Contact Woods Lonergan PLLC to Learn More About Breaches of Contract
If your company is facing a breach of contract dispute, you need experienced legal counsel to protect your business’s rights and interests. Contact Woods Lonergan PLLC today for a consultation with an attorney about your legal options after an alleged breach of contract.