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What Is Breach of Contract? Key Considerations

Contracts are so commonplace in our everyday life, that many of us don’t give them a second thought. You sign on the dotted line (or in case of a phone or computer, checking a box on the screen) and move on, trusting that all is taken care of by a piece of paper. If it was only that simple. 

When you’re in a contract that’s been broken, it can be a legal and emotional roller coaster. Confusion, betrayal, anger — you shouldn’t have to navigate this legal situation alone. And with the counsel of a good lawyer, you don’t have to.

In plain terms, what is breach of contract, and how do you know when you should call your lawyer?

Here, we will let you know the ins and outs of what is breach of contract and how to handle the situation paired with breach of contract examples that you may have seen in the media.

Whether your contract is straightforward and dealing with a small matter or something large-scale and more complicated, you shouldn’t have to deal with the frustration of broken promises, especially when there are laws to protect you in this situation. 

What is Breach of Contract?

Simply put, the definition for what is breach of contract boils down to when one party to an agreement fails to live up to the terms of the contract.

In general, there are three main ways a contract can be breached:

  • Refusing to fulfill a promise
  • Failing to perform a promise
  • Interfering with another party’s performance that impacts the promise

The Four Kinds of Breach of Contract:

When asking “what is breach of contract,” it is important to understand that there are several kinds of breaches you may encounter. Not all breaches of contract are created equal. How the cases are categorized determines what remedies and obligations will be needed to make amends. 

Material Breach

A material breach of contract occurs when the breaching party completely fails to perform an aspect of the contract to the point that the other party receives something utterly different than what was agreed upon.

For example, if someone signed a contract for three cars but received three boats instead — this would be a material breach of contract.

According to the law, in these cases, the non-breaching party is no longer required to observe the contract and is entitled to all remedies. 

Cornell’s Legal Information Institute says the definition of material breach, and factors for determining one, is found in the Restatement Second of Contracts § 241:

  1. “Depriving a benefit from the injured party which was reasonably expected.
  2. The extent to which the injured party can be adequately compensated for the benefit not received.
  3. The extent to which the party failing to perform will suffer forfeiture.
  4. The likelihood that the party failing to perform will fix his or her failure.
  5. The extent to which the failing party is acting in standards of the implied covenant of good faith and fair dealing.”

Minor

When a breach of contract is labeled as minor, while the breaching party failed to perform some part of the contract, the other party still received what was promised– either the item or service specified in the contract. This means that minor breaches deal with delivery delays when a deadline is set. 

However, in this case, the non-breaching party still is required to abide by the contract while recovering damages that resulted from the breach. So, in most cases, the non-breaching party still has to pay for the goods or services. 

Anticipatory Breach of Contract

In some cases, the breach of contract doesn’t even happen for the other party to be liable for damages. An Anticipatory Breach occurs when one party has made it clear they have no intentions of fulfilling their promises under contract. A claim of this magnitude can also happen if actions, rather than words, indicate that this is the case. 

Actual Breach of Contract

This broader labeling is reserved for breaches that have already occurred. The offending party has either refused to live up to their end of the contract by a specific due date, or their attempts to do so were done incompletely, improperly or in another way that violates the agreement.

With these cases, the wronged party is entitled to several types of remedies that address economic losses or indirect losses beyond the financial value of the contract itself

Examples in the Media:

Breach of contract examples can be found everywhere in the media — especially when they involve big names and big businesses. Here are a few notable breach of contract examples. 

Johansson vs. Disney 

This breach of contract example erupted this past summer and was only recently resolved at the end of September.

Johansson claimed Disney was in breach of contract by releasing her film, Black Widow, straight to Disney Plus for streaming. According to her, the contract guaranteed an exclusive theatrical release for a certain period of time. Her overall compensation was based on movie theater sales — which she would no longer get due to the release on their streaming platform.

Fortunately, in this case, while the details have not been disclosed to the public, the case did resolve in an amicable way where the actress will continue working with Disney on her other projects along with receiving compensation in some way. 

This case in the media was not pretty, especially when Disney publicly accused Johansson of “callous disregard” toward moviegoers in the face of COVID-19, but other actors came to her side in support of her lawsuit

Nike vs. Three Ex-Employees

This 2015 breach of contract case was complicated but ultimately settled outside of court. Nike claimed that three of its former employees conspired to work for Adidas while still employed by Nike. 

Nike’s employees sign a noncompete clause that ensures they cannot work for a competitor within a certain amount of time. The three employees left the company to form a design studio for their own shoes to work for Adidas through the independent company. The employees thought this would be a way to get around the noncompete clause, but Nike certainly didn’t think so. 

Many interesting details complicate this case and can be read here, but ultimately a resolution was determined, although the settlement details were not disclosed. 

Leonard vs. Pepsico Inc.

This famously humorous case from 2000 is an excellent example of what is not a breach of contract

In the late 90s, Pepsi launched an ad campaign for its redeemable points program. In the television ad, a teenager redeems his 7 million Pepsi points for a Harrier Jet, which is a fighter aircraft for the United States Marine Corps.

Upon seeing this ad, Leonard wrote PepsiCo a check for $700,000 — the equivalent of what the seven million Pepsi points would cost. When Pepsi refused to deliver, Leonard sued for breach of contract.

However, for multiple reasons, this case was dismissed. The company made the argument that no reasonable person would think this was a legitimate offer. But more importantly, when consumers were directed to the sweepstakes guidelines, there was no promise of a Harrier Jet. As a result, no contract was actually breached.

Secure Legal Help with Woods Lonergan PLLC 

Do you find yourself still questioning “what is breach of contract” and if your case qualifies? Take the guesswork out of your legal woes and reach out to seasoned professionals who will fight in your corner. At Woods Lonergan PLLC, we will guide you every step of the way through understanding your contract and setting up your case. 

Contact us today to find out how we can assist in addressing these issues and h