4 Types of Contract Breaches You Need To Be Aware Of
Anyone who enters into a legal arrangement assumes the risk of a breach of contract. It’s likely that you will come across a contract at some point if you deal with a multitude of agreements (and lots of different sorts of agreements, from vendor and customer agreements to employment contracts).
Fortunately, as contracts are legally enforceable agreements, there may be a remedy available if a party doesn’t fulfill their contractual commitments. These situations are known as breaches of contract, and being able to identify a breach is a crucial first step in asserting your contractual rights.
Contracts include many different kinds of legal terms and commitments, but breaches themselves may be categorized in just a few different ways. The four primary categories are as follows:
1. Minor Breach of Contract
A minor breach of contract is when a party fails to follow one of the terms. This breach is usually insignificant and doesn’t impact the remainder of the contract. Often, this is an oversight or a missing piece, but the end product is delivered.
2. Material Breach of Contract
Something that would usually be a minor breach may be considered a material breach if it causes substantial damages to the non-breaching party. A material breach is the opposite of a minor breach. A material breach occurs when a party makes a serious violation that prevents the contract from being completed. This is a fundamental breach of contract.
3. Anticipatory Breach of Contract
An anticipatory breach of contract is just what it sounds like. Sometimes, a party believes that the other party isn’t going to hold up their end of the agreement in the future. In anticipation of the breach, they file a lawsuit to terminate the contract before the breach happens and minimize their own damages.
4. Actual Breach of Contract
Unlike an anticipatory breach of contract, where a party has a feeling that something will go awry, an actual breach of contract is when the damage has been done. In this case, the other party refuses to fill the contractual duties—either by doing the work incompletely or not honoring set dates that were agreed to.
Here’s an example:
A restaurant contracts with a farmer to deliver 100 cartons of eggs every Friday morning;
- If on one occasion, the farmer delivers the eggs Friday afternoon, it may be considered a minor breach. The restaurant still got the eggs despite the shipment being late.
- If the farmer delivers 75 eggs instead of 100 eggs on a Friday morning, this may be a material breach. The documented deal was for exactly 100 eggs, and the restaurant was counting on that amount.
- If the farmer calls the restaurant and believes that there will continue to be a shortage of eggs on upcoming Fridays, this is an anticipatory breach of contract.
- If the farmer calls the restaurant and says he’s not going to deliver the eggs because he is contracted to sell them to a different restaurant, this is an actual breach of contract.
You cannot completely avoid a violation of a contract since you have no control over the other party’s behavior. However, this does not imply that you cannot reduce your risks.
By creating the best agreements possible, you can lower your risk of contract violations. Businesses have a valuable, yet sometimes overlooked instrument at their disposal: legacy and archival contracts.
You may find the terms and provisions that best decrease vulnerabilities by reviewing previous agreements, both those that were successful and those that did not perform as planned. For instance, you could find parallels in phrasing that you can avoid if you analyze comparable agreement types that have led to breaches.
But even well drafted contracts that were signed with the greatest of intentions can face breaches. There are, however, some actions you may take to lessen the danger and lessen your losses.
- Make sure everyone involved is aware of their responsibilities.
- Keep tabs on contract performance.
- Ensure your contracts are always accessible.
While we hope you never come into a situation where a contract is breached, contact our office and we will be more than happy to provide you with a referral.