A contract is a legally binding promise made between two parties. Each party to a contract promises to perform a certain duty, or pay a certain amount for a specified item or service. The purpose of a contract being legally binding is so each party will have legal recourse in the event of a breach.
A breach of contract occurs when the promise of the contract is not kept, because one party has failed to fulfill their agreed upon obligations, according to the terms of the contract. Breaching can occur when one party fails to deliver in the appropriate time frame, does not meet the terms of the agreement, or fails perform at all.
Further, if one party fails to perform while the other party fulfills their obligations, the performing party is entitled to legal remedies for breach of contract.
There are four main types of contract breaches:
- Minor Breach: A minor breach of contract occurs when a party fails to perform a part of the contract, but does not violate the whole contract. To be considered a minor breach, the infraction must be so nonessential that all parties involved can otherwise fulfill any remaining contractual obligations. A minor breach is sometimes referred to as an impartial breach;
- Material Breach: A material breach of contract is a breach that is so substantial, it seriously impairs the contract as a whole; additionally, the purpose of the agreement must be rendered completely defeated by the breach. This is sometimes referred to as a total breach. It allows for the performing party to disregard their contractual obligations, and to go to court in order to collect damages from the breaching party;
- Fundamental Breach: A fundamental breach of contract is essentially the same as a material breach, in that the non-breaching party is allowed to terminate the contract and seek damages in the event of a breach. The difference is that a fundamental breach is considered to be much more egregious than a material breach; and
- Anticipatory Breach: An anticipatory breach occurs when one party lets the other party know, either verbally or in writing, that they will not be able to fulfill the terms of the contract. The other party is then able to immediately claim a breach of contract and pursue a remedy, such as payment. Anticipatory breach may also be referred to as anticipatory repudiation.
An oral contract is a contract in which the terms are agreed upon verbally, whereas a written contract is a written document. Generally, oral contracts are enforceable and legally binding; however, not every type of contract can be enforceable when they are oral as opposed to written.
Some specific types of contracts must be in writing in order to be enforceable. These may include:
- Contracts involving the sale or transfer of land;
- Promises to pay someone’s debt obligations for them;
- Contracts that cannot be completed within one year of the creation of the contract;
- Contracts involving the sale of of goods for more than five hundred dollars; or
- Contracts that will extend beyond the lifetime of one of the involved parties, therefore leaving the terms and conditions of the contract in the sole knowledge of the living party.
Thus, if you are selling your car for more than five hundred dollars, a simple verbal agreement will not be enforceable, instead you will need to draw up a written contract.
The types of legal remedies available for breach of contract depends largely on the severity of the breach. Generally, damages awarded are categorized into four groups:
- Compensatory Damages: Compensatory damages are those that compensate the non-breaching party for their losses. This is the most common legal remedy, and a court can order the breaching party to pay the non-breaching party enough money to get what they were promised by the terms of the contract;
- Restitution: If the non-breaching party is able to prove that their loss is due directly to the actions of the breaching party, a judge may order restitution, which could include lost wages, medical bills, and property repair and/or replacement;
- Punitive Damages: Punitive damages are generally awarded alongside compensatory damages. The purpose of punitive damages is to punish the breaching party when they have engaged in particularly egregious behavior in order to breach the contract, such as being intentionally negligent; or
- Specific Performance: Specific performance is utilized as a legal remedy for breach of contract, and it requires the breaching party to perform their part of the contract. Specific performance is not always available.
If there has been a breach of contract, you should first thoroughly review the contract to see if any instructions regarding a breach were built into the contract. Mandatory arbitration or a liquidated damages clause are two examples of such instructions.
Second, you should let the other party know that there has been a breach. If you committed the breach, it is better to own up to it before it is found out, which could lead to more serious consequences. If the other party committed the breach, it is best to give them an opportunity to rectify the situation before taking legal action.
It is highly important that you maintain any documentation related to the contract. Carefully record every incident that occurs as a result of the contract. Doing so will make it easier to argue your side should the breach result in legal action.
A skilled and knowledgeable business attorney will be able to represent you in court, as well as ensure you are educated on state specific laws regarding breach of contract. Additionally, they will ensure the meeting of deadlines and filing dates, and help you determine what remedies may be available for your specific situation.