In general, a breach of contract can be described as a situation wherein one or more of the parties to a contract fails to fulfill the contractual obligations that they legally agreed to when they signed the contract.
Depending on the severity of a breach, a breach of contract can be classified as either a minor or substantial breach. The standard rule adhered to in such a scenario is that the more severe a breach is, the more likely the breach will result in rescission or termination of the contract.
What Is a Fundamental Breach of a Contract?
A fundamental breach, also referred to as a material or substantial breach, may occur when one or more of the contracting parties fails to perform such a significant portion of the contract that it results in terminating the contract. In other words, the breaching party’s actions (or lack of actions) are so crucial to completing the contract that it renders all other parties unable to perform their own individual duties.
For example, suppose a consumer hires a designer to make them a custom dress. The designer agrees to not accept payment until after the dress is finished. On the day that the dress is supposed to be delivered, the dress never arrives. The consumer calls the designer only to learn that the dress was never made and that the designer went out of business. Thus, the consumer will not be obligated to pay the designer since the dress was never made.
The consumer will have a legal right to cancel the contract because the designer’s business no longer exists and there is no way that they can ever get the designer to make the agreed upon custom dress. The consumer could also sue the designer for fundamental breach of a contract in court and can try to recover damages if they are able to locate the designer.
Depending on the terms of the agreement, the consumer may be able to recover the costs to hire a new designer, any fees they may have paid up front, and for the length of time they had to wait to finally get the custom dress designed.
Additionally, the consumer in the above example can also not be penalized for canceling the contract because the designer’s actions made it impossible for the consumer to fulfill their contractual obligation of paying them for the final product.
Does a Fundamental Breach Give You the Right to Anything Else?
As discussed above, a fundamental breach gives the non-breaching party a right to terminate the contract or to file a lawsuit against the breaching party. If the lawsuit is successful, the non-breaching party will have a right to recover damages and/or other forms of equitable remedies.
Some examples of equitable remedies include reformation, specific performance, and rescission of the contract. Further details about these legal remedies will be discussed in the section below regarding different types of relief for a fundamental breach of contract.
Is a Fundamental Breach the Same as an Anticipatory Repudiation?
A fundamental breach of contract is not the same action as an anticipatory repudiation. Anticipatory repudiation refers to a situation in which one party stops performing their duties under the contract or does something that clearly indicates they have no intentions of fulfilling the contract. The non-breaching party must also be led to believe that the other party has deliberately breached the contract and must stop performing their own contractual duties.
An example of an anticipatory repudiation would be if a contractor who was hired to renovate a house stops showing up to work and it appears that no further work has been done on the house. In this instance, the homeowner may be led to believe that the contractor has abandoned the renovation project and is no longer working on their house. Thus, the homeowner would be free to cancel the contract and to hire someone else to do the job.
An anticipatory repudiation is very different from a fundamental breach. With a fundamental breach, there is no belief that the other party will fail to uphold their end of the agreement. The party who is in fundamental breach of the contract may continue performing their other contractual obligations, but fails when it comes to satisfying a substantial term in the contract.
Is a Fundamental Breach Similar to a Minor Breach?
As briefly mentioned, a minor breach or non-material breach of a contract refers to a contracting party’s failure to satisfy a minor term contained in the contract. Unlike a fundamental breach, a minor breach will not usually affect the outcome of a contract.
On the other hand, a fundamental breach may change the outcome of a contract entirely and may result in a termination or cancelation of the contract.
What Type of Relief Is Awarded in a Fundamental Breach?
As discussed above, a fundamental breach authorizes the non-breaching party to cancel the contract and to sue the breaching party for monetary damages. However, a lawsuit involving a fundamental breach of contract may also result in several other legal remedies.
For instance, a court may order the breaching party to fulfill their contractual obligations. This means that the breaching party will be required to finish the tasks, provide the services, or deliver the goods in the manner that was agreed upon in the contract. It is important to note that this type of legal remedy, which is known as “specific performance”, is extremely difficult to obtain.
Generally speaking, courts prefer to refrain from forcing someone to complete a specific job. Again, this will be contingent on the parties’ circumstances, the terms of the contract, and state or local contract laws.
Another type of legal remedy that a non-breaching party may request is rescission. Rescission essentially means that the contract will be canceled and the party will be reimbursed as if the contract was never formed in the first place. A court may order the breaching party to refund the non-breaching party the amount that was already paid for the goods or services in question if any payments were made.
One other way that the parties could settle an issue involving a fundamental breach of contract is by asking the court for permission to rewrite the contract. This kind of legal remedy is known as reformation of the contract. Reformation is often used when the breaching party needs more time to fulfill their contractual obligations.
Lastly, it should be noted that while a party may be ordered to pay damages for fundamentally breaching a contract, they may be released from having to perform their contractual duties. Again, this will depend on the individual contract and the circumstances surrounding a specific fundamental breach.
Should I Contact a Business Attorney about a Fundamental Breach?
If you believe that another party has fundamentally breached your contract agreement and you would like to sue them to recover damages, then it may be in your best interest to contact a local contract attorney for further legal assistance.
An experienced business attorney can determine whether you have a viable claim and can help you file a lawsuit against the breaching party. Your attorney can also inform you of your legal rights under both state and local contract laws.
Alternatively, if you are being sued for a fundamental breach of contract, your attorney can assist you in preparing a strong argument and can find out if there are any legal defenses available that you can raise against the claim. Your attorney will also be able to provide representation in court or at a settlement conference, depending on which method you and the other party decide to use to resolve the issue.