Ever made a deal with someone who didn’t hold up their end of the bargain? Or, maybe you’ve failed to perform your end of a contract, and you’ve been sued for a breach. So, what is “breach of contract?” Below are examples of what this is and your legal options in certain hypothetical situations.
What Is Breach of Contract? The Basics
One party to a contract makes an offer, the other party accepts it, and they agree to trade something of value (“consideration”) for the good or service being rendered. For a contract to be valid, and therefore enforceable, you need all three of these elements.
The following factors can make a contract invalid:
- Lack of capacity. A party to the contract is not mentally sound or old enough to sign contracts
- Duress. One party forced another to enter into a contract
- Undue influence. One party has an unusually persuasive relationship with the other and pressured them into the contract
- Misrepresentation. One party lied during the contract negotiation process
- Nondisclosure. One party left out important information during negotiations
- Unconscionability. The terms of the contract are grossly unfair
- Public policy. The terms of the contract go against public policy
- Mistake. One or both parties misunderstood a term of the contract
- Impossibility. One party can’t perform through no fault of their own
If you do have a valid contract, and one party doesn’t perform, they may have committed a breach of the contract.
What Is Breach of Contract? Examples
Simply failing to deliver does not fully describe what a breach of contract is. There are three main categories of breach of contract: Material, minor, and anticipatory.
A ‘material’ breach of contract, also known as a fundamental breach, occurs when a party gets something “substantially” different under the contract than what they were promised.
A ‘minor’ breach of contract, also known as a non-material breach, occurs when some non-essential portion of the contract was left incomplete. This can often occur when a contract is fulfilled late.
An ‘anticipatory’ breach of contract, also known as anticipatory repudiation, occurs when it becomes clear a party won’t perform their part of a contract, but the actual breach has not happened. It can be material or minor. A non-breaching party may try to terminate the contract, avoid unnecessary expenses, and pursue damages before a material breach.
Material Breach of Contract Examples
Suppose you close on a house, but the seller refuses to hand over the deed and keys to the house. This would be a material breach of contract since the keys and the deed are an essential part of the transaction.
Or, say you ordered 100 pairs of tennis shoes for your business, and the vendor sent 100 pairs of soccer cleats. If the vendor refused to refund you or correct the error, it would be a material breach since tennis shoes and soccer cleats are substantially different.
Minor Breach of Contract Examples
For instance, you agreed to have your walls painted french white in an eggshell finish, but the painters used a satin finish instead. This would likely be a non-material breach because the painting was done and in the correct color – but the finish was off slightly. You may still have a case if there are costs associated with repainting, or you are charged for the more expensive finish.
Let’s say you own a bookstore and you ordered $1,000 worth of hardcover books. You were shipped $1,000 worth of softcover books instead. What is the breach of contract here? If they were otherwise the correct titles, it may be viewed as a minor breach unless there are special circumstances. If, for example, you had an author signing and they would only sign hardcovers, you may be able to claim damages.
Additionally, performing a contract late is usually considered non-material, unless your contract states your deadlines are firm and non-negotiable, or “time is of the essence.” You’d still need to prove late performance cost you or harmed you to seek damages.
Anticipatory Breach of Contract Examples
Using the housing example, say the seller tells you one week before closing they won’t hand over the deed or keys. What is the breach of contract here? They haven’t technically breached yet, but it’s clear they will.
Another example would be the hardcover versus the softcover books you ordered for your store. The vendor takes your money and tells you they’ll ship you the books. But a week before they’re supposed to be there, they tell you they’re shipping softcover books, and won’t refund you.
What Is a Breach of Contract Remedy?
What’s next if you breach a contract? Typically you or the other party would go to court after a breach if you can’t work it out yourselves. A lawyer looks at several factors before taking on a breach of contract lawsuit:
- The severity of the breach
- Whether the breach was an honest mistake, which means it was minor, or if it was negligent or intentional, making it material
- Whether the contract can be resolved without a lawsuit
- The extent of the non-breaching party’s losses caused by the breach, and whether the losses can be proven in court
There are two general ways to remedy a breach of contract: Seeking equitable remedies or legal remedies.
What is breach of contract going to cost you, aside from monetary sanctions? Equitable remedies require some sort of action or change of the contract when money is not enough. A court can award one of several remedies:
- Specific performance. The breaching party is required to perform the contract as written (sometimes through an ‘injunction‘)
- Rescission. The non-breaching party may cancel their part of the contract
- Reformation. The parties may modify the contract and try again
What is a breach of contract legal remedy? Legal remedies usually take the form of ‘damages,‘ which are sums of money awarded to a winning party to compensate for the harm they suffered as a result of the breach.
“Compensatory damages” put the non-breaching party in the position they would be in if the contract was performed. For example, the non-breaching party could purchase a replacement product if the correct one wasn’t delivered. The damages must have been foreseeable and the non-breaching party has a duty to ‘mitigate‘ their losses.
“Liquidated damages” are pre-calculated in a contract when actual damages would be hard to calculate. A ‘non-compete contract‘ is a common example (however — as with other areas of contract law — not all states will enforce non-compete clauses in contracts).
“Punitive damages” are meant to punish the breaching party for an intentional or malicious breach of contract.
Additionally, attorneys fees and court costs can sometimes be awarded to a winning party in a breach of contract lawsuit.
Wondering if Your Contract Has Been Breached?
Are you still wondering, what is breach of contract supposed to look like? What does breach of contract mean in my situation? Your next step is to contact an experienced business attorney who can offer guidance.