Types of Contract Breach

A contract breach is a violation of the contract by one party and there are four main types of contract breach that are possible in business contracts. Here’s what it means and how you can remedy it with the help of an efficient CLM tool.

Author

Umashankar Natarajan

29/07/2022

1 min read

A breach of contract is a legal term that describes an agreement or contract violation. It can be committed by one party or both parties (jointly). Breach of contract can result in various consequences, depending on the type and severity of the breach. In some cases, it may not lead to any damages to either party. Contrarily, it may lead to a substantial financial loss for one party or both parties in other cases.

A breach is the biggest challenge in contract management as it brings up the situation when one party fails to accomplish their side of the agreement. It can happen in many ways. One of the most common ways is when a party fails to perform obligations outlined in the contract. For instance, if one party fails to deliver the goods or services they promised, it would be considered a breach of contract. Similarly, if one party does not pay for goods or services provided by another party, it would also result in a contract breach.

What are the common reasons behind contract breaches?

A contract breach is a violation of the contract by one party. The other party may then enforce the agreement and receive damages. A breach of contract is often intentional, but it can also be unintentional or accidental. It can happen because of a misunderstanding about what was committed or because one party did not comply with their obligations under the agreement. As a consequence, it can disturb the flow of contract management. Here are all the types of contract breaches one must be aware of:

1. Actual Breach of Contract

The Actual Breach of Contract is a breach that has already taken place. Hence, the breaching party either repudiates to live up to their commitments by the due date or have executed duties incorrectly or incompletely. There are two types of Actual Breach:

·      - Due to Late Performance

In a contract, if one party fails to fulfill its contractual obligations by the enactment deadline, the other party does not need to fulfill their duties. The latter can also hold the breaching party responsible for the contract breach.

  • During the Course of Performance

When the party fails or refuses to fulfill the contractual duties, it leads to an actual contract breach during the course of performance. It happens if the party does not comply with the contract terms. This type of breach usually occurs when one party breaches the essential conditions mentioned in the contract.

 

2. Anticipatory Breach of Contract

An anticipatory breach refers to the non-fulfillment of the contract. Under this type of breach, there is an entitlement available to the non-guilty party for legal remedy. The refutation befalls when the promisor unambiguously states or rejects to honour the contractual duties before the pre-specified end date of the contract. It is generally exercised when the promisee provides payment consideration, but the promisor fails to accomplish the contractual obligations.

 

3. Material Breach of Contract

The material breach ensues when one party gets considerably lesser benefits or a substantially different outcome than what was mentioned in the contract. Likewise, material breaches involve the inability to perform the agreement's duties. The failure to carry out the contractual obligations in due time is also a material breach. In such conditions, the non-guilty party is entitled to pursue damages associated with the breach alongside the direct or indirect consequences.

4. Minor Breach of Contract

Also known as Immaterial Breach or Partial Breach of Contract. The minor breach denotes conditions where the contract's deliverables were eventually received by one party. Yet, the other party failed in fulfilling some portion of their contractual responsibility. In such circumstances, the sufferer party might only be entitled to pursue the legal remedies if they prove that breach leads to financial loss. However, there is no legal remedy available for the late delivery if the breached party fails at showing the financial adversities arising out of delay.

Remedies Available for Contract Breach

The non-guilty party can seek particular relief/remedy under the law in a contract breach. Here are the most common ones:

- The payment of monetary or financial damages is the most pursued remedy available to the non-defaulter party in the form of nominal, compensatory, liquidated, or punitive damages.

- Suppose the damages are not entirely covering up for the loss/injury befallen. In that case, the innocent party may appeal to the court to grant specific performance requiring the guilty party to fulfill the contractual commitments.

- The non-guilty party can go for contract termination, thus filing a restitution claim if any benefit has been provided to the defaulting party by the former.

Conclusion

Indeed, both parties need to abide by and carry out their respective contractual obligations for flawless and smooth contract management. If a contract is breached, it might be necessary to terminate it. Thus all parties involved will have to stop their part of the agreement and move on. It is important to note that this termination does not always mean that the contract is broken. It can be terminated without any breach if the parties agree or if certain circumstances warrant such actions.