A contract is a legal and binding promise between two or more parties. If any of the parties involved in the contractual agreement fails to fulfill their obligations or does not complete their part of the contract on time or according to the terms of the agreement, it is called a breach of contract. If a party does not have a justified or legal reason for failing to meet the requirements agreed upon by all parties, the contract is considered breached.
4 Main Types of Contract Breaches
There are many details and complexities involved in creating and adhering to a contract, but generally, contracts are legally binding, so in the event of a breach, each party has the right to legal protection. Typically, there are four types of contract breaches:
Minor Breach
Sometimes called a partial breach, a minor breach occurs when one party breaches part of the contract but not the entire contract. The breach must be so minor that all parties involved in the contract can fulfill all remaining obligations. For example, if Company A hires Company B to install a new roof on its building, Company B may complete the work on time, but the appearance of the shingles may not be uniform enough, or the nails may have been driven too deep or placed in the wrong locations. Company A is likely unable to sue for non-performance of the work since it was completed on time. However, it may compel the company to fix the issue or sue for monetary damages.
Material Breach
Sometimes called a total breach, a material breach is considered the most serious because one party has failed to fulfill the obligations specified in the contract. Thus, the breach is so significant that the purpose of the agreement is completely undermined. Since the non-breaching party has received no benefit from the contract, it allows the non-breaching party to disregard it and sue for damages.
Anticipatory Breach
This type of breach is also called anticipatory repudiation, and it occurs when one party knows that the other party will not fulfill the contract terms on time. This allows the non-breaching party to declare the contract breached. For example, if Company A hires a painting firm to paint the interior and exterior of its new residential complex of 10 buildings by August 1st, and the painting firm has not started work by July 31st, Company A can sue for damages since the painting firm cannot complete the work by the date specified in the contract.
Fundamental Breach
This type of breach is similar to a material breach. It occurs when one of the parties involved in the contract fails to fulfill an obligation that was so important to the agreement that the other party cannot fulfill its contractual obligations. In this case, the non-breaching party may completely terminate the contract.
Available Damages
The damages that can be obtained for a breach of contract depend on the type and severity of the breach but may include compensatory damages, restitution, punitive damages, and specific performance. Compensatory damages pay the non-breaching party enough money to receive what was promised under the contract terms and are the most common legal remedy in such cases.