In any commercial transaction between two or more parties, contracts serve as the foundation of confidence and trust. Properly crafted contract safeguards everyone’s comprehension of his or her rights, obligations, and the agreement’s stipulations. But what then occurs when one of the parties does not honour their side of the deal? This is known as a breach of contract. Every business or individual entering into formal agreements should be equipped with knowledge relating to formal contracts.
What Is A Breach of Contract?
Failure to comply with any legal obligation of a contract without a valid and lawful reason constitutes a breach of contract. Not delivering the promised goods or services in the agreed time framework, not paying on due dates, and not completing the activities in accordance with contracts would result to breach of contact. All breaches fall into two categories: minor infringements (partial or immaterial breaches) and major breaches (material breaches) which violate the essence of the agreement.
For instance, when a software vendor fails to deliver a fully functioning software as they agreed, and it causes the buyer to incur losses, then that is a material breach.
Types of Breaches
Knowing which part of the contract has been broken is important in deciding what remedy to give:
Material Breach – A serious violation that destroys the value and the aim of the contract (disallowing the remaining participant to gain from the deal). A party who suffers material breach of contract is left with an option to cancel the contract and claim compensation.
Minor Breach – Less serious than a material breach. Usually does not defeat the essence of the contract, thus, it is still enforceable. The party who suffers a minor breach may claim damages.
Anticipatory Breach – An intention breach where one makes known ahead of time that he will abandon the performance of his obligations under the contract.
Actual Breach – This happens when a party bluntly disregards their duties under the agreement at the due time of performance.
BREACH OF CONTRACT- LEGAL REMEDIES
Once a breach occurs, there are a number of remedies available to the aggrieved party under the contract law. The purpose of these remedies is to mitigate some of the losses suffered and/or restore the terms of the contract to its original state.
1. Damages
Compensatory Damages: Agreed damages to be paid to the non-breaching party which would reimburse them for damages as result of not executing the performance of the contract.
Consequential Damages: Covers indirect losses to the non-breaching party inflicting profit loss as a result of breach of the contract.
Liquidated Damages: Refinement consisting of set amount to be included in the contract which is paid in case of breach.
Nominal Damages: A breach of the contract legally allows the injured party to receive some amount as compensation even though in fact it is not a real loss.
2. Specific Performance
The breaching party may in certain circumstances, in particular if the subject matter is exceptional such as real estate or unique/special goods, be compelled to conduct his part of the contract in question instead of payment of damages.
3. Rescission
This remedy is applicable where by cancelling the contract, it discharges both parties from future obligations. It is utilized in practice when a material breach has occurred whereby on continuing the contract would be unreasonable.
4. Reformation
The court may allow a contract to be reformed to what the parties actually intended if the contract was made on the basis of a mutual mistake or misrepresentation by the parties.
Steps to Prevent Breaches of Contract
As is the case with most things, prevention is better than cure. To manage the risk of breaches effectively, one should:
Ensure the contract is detailed and do not include ambiguous language.
Always have dispute resolution procedures.
Set out terms of non-performance.
Foster constant engagement between the parties to the contract.
Make use of CLM tools for compliance and monitoring.
Conclusion
A breach of contract can lead to financial loss, reputational damage, and legal complications. Understanding what a breached is and the workaround approaches gives the parties the capability to act in a swift manner. You’ll want to turn to a legal professional whether it’s for drafting an agreement or negotiating a dispute over a contract to guarantee your protection.