When one party fails to fulfill their obligations under a legally binding agreement, it’s called a breach of contract. Not all breaches are the same, and the severity and impact of a breach can vary depending on the situation and the terms of the agreement. Knowing the types of breaches and the legal remedies available is crucial for protecting your business when things go wrong.
There are four primary types of contract breaches: material, minor, anticipatory, and actual.
A material breach is a serious violation that affects the heart of the contract. It usually excuses the non-breaching party from continuing their own obligations and often results in the right to sue for damages. For example, if a supplier completely fails to deliver products that were essential to a company’s operation, that’s a material breach.
A minor breach, sometimes called a partial breach, involves a small deviation from the contract terms that doesn’t completely destroy the value of the agreement. For instance, if goods are delivered a day late but otherwise meet the contract specifications, this might be a minor breach. In such cases, the non-breaching party is still required to perform their part but may be entitled to damages.
An anticipatory breach occurs when one party indicates they will not fulfill their future obligations under the contract. This can be stated directly or implied through actions, like shutting down a business. When anticipatory breach happens, the non-breaching party doesn’t have to wait for the deadline—they can take action immediately to protect their interests.
An actual breach is straightforward: it happens when a party simply doesn’t do what they promised by the agreed time or in the agreed manner. This includes failing to pay, not performing services, or delivering defective products.
When a breach occurs, there are several legal remedies that may be available, depending on the nature of the breach and what was agreed to in the contract.
Damages are the most common remedy. These include compensatory damages to cover the losses caused by the breach, and sometimes consequential damages for indirect losses. In rare cases, courts may award punitive damages, particularly if the breach involved fraud or bad faith.
Specific performance is a legal remedy that requires the breaching party to carry out their obligations under the contract. Courts usually reserve this remedy for unique cases—like the sale of real estate or a rare item—where monetary compensation isn’t enough to make things right.
Rescission allows the parties to cancel the contract and return to their positions before it was signed. This is typically used when there’s been a material breach or mutual mistake.
Reformation is a remedy that lets the court rewrite the contract to reflect the parties’ true intentions. This is helpful when the contract was based on a misunderstanding or mistake that affected the written terms.
To avoid breach of contract issues in the first place, it’s critical to draft clear, detailed agreements and to follow up with consistent documentation and communication. When a breach does occur, understanding your options—and acting promptly—can protect your business and limit the damage.