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What is a breach of contract?

Consider the term 'breach' synonymous with break, just like the broken word mentioned in the above scenario. Breach of contract can be defined as a broken contract, stemming from failure to fulfill any term of a contract without a justifiable, lawful excuse. A breach of contract might occur when a coworker refuses to complete her portion of a job; when an employee does something prohibited by his job contract; or even when a customer prevents the contractor from satisfying the obligation or finishing the project at hand.

How does a breach of contract impact a small business?

Contract breaches are obviously bad news for small businesses and individuals. They can waste both money and time, and certainly lead to frustration for everyone involved.

At the same time, it's important to note that not all breaches are created equal. In most cases, if you want to move forward with a breach of contract suit, it needs to meet the criteria set by the following four breaches:

  • A material breach-failure to perform one's duties as set in the contract-is considered one of the most serious, and allows the injured business or individual to seek damages in court. The broke contractor mentioned above might be able to collect in court because his client failed to perform his end of the deal. The contractor was supposed to collect his pay when he finished the job. He did his part, but the client didn't follow through with his end of the deal.
  • Fundamental breaches also often end up in court, as this kind of violation allows the aggrieved individual to stop performance of the contract and sue for damages. For example, if you signed a lease for a new apartment, but showed up on moving day only to find someone else living there, your landlord is in fundamental breach of the lease contract. You could sue for damages and to make him rent the apartment to you under the original agreement.
  • An anticipatory breach allows one person to say the contract is broken when it becomes evident the other party will not execute his or her end of the contract within the allotted time. Let's say your neighbor hires you to paint her house, for example, and she'd liked the job completed by October 1. If you haven't started by September 30, she could try to collect monetary damage because there's no way you could get the job done in time.
  • A minor breach is a partial breach. For instance, let's say you hire a friend to build a website for your business. He gets the site done in time, but there are a few errors. While you can't sue for actual performance (he finished the job after all), you might have the option to sue for monetary damages or force him to make corrections.

Regardless of the type of contract breach, you need to establish a few facts to build a credible case should you take the breach to court, and this can get tricky-especially if the contract was verbal or implied. In most breach of contract cases, you must verify that:

  • The contract existed.
  • The contract was broken.
  • You lost money.
  • The defendant (person or business you're challenging) was responsible.

Where there is a right, there is a remedy

No matter what kind of contract breach you've experienced, you need to be aware of what types of remedies are available to you. In many cases, you might just seek money to make up for what was lost from the broken contract. Common monetary remedies and damages in breach of contract cases might include:

  • Compensatory damages pay money to reimburse costs and compensate for losses.
  • Consequential and incidental damages are generally awarded if everyone involved was aware of potential losses in case of a breach when the contract was signed or accepted.
  • Liquidated damages are agreed damages specified in the contract.
  • Punitive damages, or money given as retribution, are for offensive behavior or actions from the defendant (rare in breach of contract cases).
  • Attorney's fees are recoverable as damages in contract cases when expressly included in the contract or authorized by statute.

Sometimes there's more than money involved in breaches of contract. These cases also have common remedies, which include:

  • Specific performance, a court order for each person or business to follow through with the initial agreement
  • Rescission, which is when the contract is canceled, any money returned, and the matter dropped as if it never happened
  • Reformation, achieved when the contract is re-written to better suit the actual intention of the contract-essentially a 'do-over'

The options for remedies are often included in the contract itself. Before considering legal action in a breach of contract case, it might be wise to carefully review the initial contractual agreement and look for any limitations or requirements to avoid unintentionally waiving contract remedies.

Breach of contract disputes are likely among the most common legal suits in today's courts because they can potentially impact any aspect of any small business. No matter whether you're dealing with contract fraud, nonpayment claims or even failure to comply with a non-disclosure agreement, it doesn't have to be an uphill battle. Knowing your rights, options and legal remedies can make dealing with breaches of contracts a little less painful. And remember: it's hard to get what you deserve if you don't create a quality business contract in the first place.  

This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.

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