When an important business contracts falls through, it can be overwhelming for a small business owner. If this has happened to you (or is about to) you need to talk to a business lawyer who has experience with contracts, to protect their business interests.
Read on to learn more about what a breach of contract is, how it impacts a business, and the remedies available when a breach occurs.
What is a Breach of Contract?
“Breach of Contract” is a legal term that describes the violation of a contractual agreement. It occurs when a party fails to fully perform its duties under a legally binding contract. A breach of contract can occur in three ways:
1. Partial Breach
A partial breach, also referred to as a minor breach of contract, occurs when a party fails to satisfy a term of the contract; however, the breach is so minimal that it does not cause the contract to be cancelled. A partial breach permits the non-breaching party to sue the breaching party for damages, but it does not excuse the non-breaching party from performance under the contract.
2. Material Breach
A material breach also referred to as a major breach of contract, occurs when a party fails to satisfy material terms of the contract. The breach of contract must impact the contract’s subject matter and negatively affect the outcome of the agreement in order to be considered material. A material breach permits the non-breaching party to suspend performance under the contract and sue the breaching party for damages.
3. Anticipatory Breach
An anticipatory breach occurs when party shows unequivocal action to not complete his/her duties under the contract within a reasonable time. An anticipatory breach permits the non-breaching party to suspend performance under the contract and sue the breaching party for damages.
How Does a Breach of Contract Impact Your Business?
A breach of contract hurts your company two ways. Financially, your business will lose money, especially if you had other projects that depended on the success of the now-broken contract. Furthermore, mitigating the consequences (“the ripple effect”) from the contract breach will also cost you money and will definitely waste more of your time.
It is going to be in your best interest to contact a business law attorney as soon as you realize that you your company is facing a breached contract. We can help you explore your options to help mitigate the risks.
What Happens After a Breach of Contract?
The action taken after a breach of contract will depend on the type of breach. However, regardless of the type of breach that occurs, the non-breaching party will need to establish the following elements to show a valid cause of action for a breach:
1. A valid contract with essential contract elements existed;
2. A breach in fact occurred at no fault of the non-breaching party;
3. The non-breaching party notified the breaching party of the breach;
4. The non-breaching party suffered pecuniary loss as a result of the breach; and
5. The breaching party was responsible for the breach.
Breach of Contract Remedies
Below we have presented 3 main remedies a non-breaching party may seek to be made whole after a breach of contract occurs:
1. Compensatory Damages
Compensatory damages consist of a specific monetary compensation for financial losses sustained by a breach of contract. The non-breaching party must show that he/she suffered some monetary loss as a result of the breach to collect damages.
2. Consequential Damages
Consequential damages are foreseeable damages that result from a party’s breach of contract. These damages arise from special circumstances outside the contract itself. They flow from the consequences, or results of the breach of contract.
3. Specific Performance
Specific performance requires the breaching party to complete their promised terms of the contract. Specific performance is usually granted as a remedy for contracts involving the sale of land. It is usually not permitted for contracts involving personal services.
If your business is faced with a possible breach of contract, please call The Law Office of Brandon Woodward to speak with a contract attorney. We’ll do everything we can to help you protect yourself and your business.