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Breach of Contract- Types and Remedies

Last updated: 05 Jan, 2022 By | 6 Minutes Read

Large organizations make different significant decisions every day, so they need to deal with an immense proportion of outside and interior contracts. And in this horde of exchanging contracts, there may come an instance when someone breaches a contract with your organization.

Fortunately, contracts are legally binding documents; therefore, if one party fails to perform their part of the obligations, the other party can seek remedy. And there are numerous expected solutions for breach of contract. These can go from upholding the particulars of the agreement to financial remuneration. But sometimes, it gets tricky to understand whether a breach of contract has occurred or not, especially when contract management solutions are not researched with optimum attention. tasks are not handled with optimum attention

Elements of a Valid Contract

Offer- An offer or a promise or an agreement needs to be in a contract because there will be no contract if there is no offer.

Acceptance- For a contract to be made valid there should be an acceptance from the other party or person.

Consideration- Consideration in a contract would mean that the other person would be giving back something in return.

Intention to create legal relation- The parties’ intent to a contract must be to create a legal relationship between them.

Certainty- The terms and regulations being made in a contract should be stated clearly and understood by the contract parties.

Capacity- Capacity in a contract is that the parties to the agreement must have the legal capacity to do what they have mentioned in the agreement.

Types of Breach of Contract

Anticipatory Breach of Contract

There is no necessity that a breach actually needs to occur to make the responsible party liable. Under anticipatory breach, prior to the performance date, a party absolutely repudiates the agreement between both parties. Through its actions, it indicates that it will no longer perform the commitment it made while entering the contract.

This impression could be a failure to do an act, like not providing an ordered item or payment, not performing a task, or performing a task they are not supposed to serve.And yes, the aggrieved party can sue for anticipatory breach and seek a remedy before an actual violation has taken place.

For example, suppose you decided to sell your car and agree upon a price with a party. A contract was drafted and signed under which you will give your vehicle to the party, and in exchange, the person will provide you with the price in a certain amount of time. But then the person indicates through his actions that they can’t accumulate the decided amount. So you may sue them for breach of contract or sell the car to another person.

Actual Breach of Contract

An actual breach of contract occurs when a violation takes place, which means the party had refused to fulfill their duty before the deadline or did perform their duty but improperly or incompletely. When a breach occurs, firstly, the innocent party is excused from performing their part of the obligation. Then there are many remedies available for the aggrieved party when a breach of contract occurs.

These can be compensatory damages in monetary terms to reimburse direct financial loss caused due to the breach of contract or any other consequential loss that is indirect but happened due to the violation.For example, you order a product online, but it did not get delivered, or the wrong product was delivered to you.

Also Read:Tips to Deal with a Contract Breach: Before, During, and After a Legal Action

Material Breach of Contract

When a party acts in such a manner that destroys the value of the contract, or the resultant act of a party leads to a significantly different outcome than what was expected. Such kind of act is known as a material breach of contract. It can include the inability to perform the instructed duties laid out within the contract or failure to perform obligations timely.

The other party can ask for compensation for such breach and for the consequences they had to suffer directly or indirectly.For example, you ordered a computer online, but you only received a monitor, you can sue for legal damages for this under material breach of contract.

Minor Breach of Contract

A minor breach of contract may also be called a partial breach of contract. It is a breach, in which the party does not perform a specific part of the contract, or the expected result was delivered to the receiving party, but some part of the obligation was still outstanding.

Under a minor breach of contract, the aggrieved party can only request compensation if they are able to prove the eruption of financial losses due to the breach.For example, suppose your shipment of ordered goods arrived late. Now you can only sue for legal damages if you can prove that the late delivery led you to encounter financial losses.

Remedies for a Breach of Contract

A breach of contract can result in the entitlement of relief to the aggrieved party. These remedies can be of 3 types:

Damage Reimbursement

Reimbursement of damages in one form or another to the aggrieved party is the most common relief provided by the law. There are several types of damages:

  • Compensatory damages try to restore the aggrieved party’s position that it would have achieved if the breach had not been committed.
  • Nominal damages are awarded mainly in the case of a minor breach of contract. A small number of damages may be awarded when a breach occurred, but an actual money loss may or may not be proved.
  • Punitive damages are the reimbursements that the breaching party has to provide to compensate the other party fully. These damages are awarded due to the wrongful act of a party and are pretty rare in the business contracts setting.
  • Liquidated damages are the pre-decided damages that are already mentioned in the contracts as a failsafe if one party breaches the contract. However, there should be a sensible approximation of actual losses that might result from a breach.

Specific Performance

If the damages cannot be compensated in monetary terms or are incompetent as a legal remedy, the innocent party can request an alternative relief called specific performance. Under this, the court orders a particular duty that the breaching party must perform in return for the damages caused.

However, specific performance may be awarded as relief only if the subject matter of the contract is rare and the damages are insufficient to restore the aggrieved party’s position.

Also Read: Avoid Business Contract Disputes with these Expert Tips!

Cancellation and Restitution

The non-breaching party could cancel a contract if it decides to sue for restitution if it had provided a benefit to the breaching party. Therefore “restitution” means that the innocent party regains the position it was at before the breach happened.

While under ”Cancellation,” the contracts are declared as void, and all the parties are relieved from their contractual obligations.

Effective Contract Management – The Ultimate Solution

As a business grows, the number of contracts it has to deal with also increases rapidly, so any minor mistake may later develop into a breach of contract. To ensure you don’t have to encounter this situation, seeking external contract management solutions could be a great way.

Many companies are handing over contract management to external firms offering exclusive contract management services at affordable prices. Reason being that these professionals can recognize any early shortcomings in contracts and make necessary changes to ensure there is no breach of contract on your end. Therefore, consider getting in touch with a good contact management service provider today.

    Don’t know where to start?

    Cogneesol has answers to all your contract management queries. To learn how we can help you manage your business contracts efficiently, talk to one of our experts today! Call at +1 646-688-2821 or email at info@cogneesol.com.

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