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Breach of Contract: Types, Impacts and Available Remedies
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 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 it is a breach or not. So, opting for contract management services can help you optimally handle contracts.
Elements of a Valid Contract
Offer- An offer, a promise, or an agreement needs to be in a contract because there will be no contract if there is no offer.
Acceptance- To make a valid contract, you should accept 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 relations- The parties’ intent to a contract must be to create a legal relationship between them.
Certainty- The terms and regulations in a contract should be clear and understandable 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 for a breach to actually 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. It 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.
Material Breach of Contract
A party commits a material breach of contract when they act in a manner that destroys the value of the contract or their resultant actions lead to a significantly different outcome than what was expected. 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 a breach and for the consequences they had to suffer directly or indirectly. For example, if you ordered a computer online but 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, also known as a partial breach of contract, occurs when the party fails to perform a specific part of the contract or delivers the result to the receiving party but still has some outstanding obligations.
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:
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 aim to restore the aggrieved party’s position to what it would have been if the breach had not occurred.
- The court awards nominal damages mainly in the case of a minor breach of contract. When a breach occurs but the court may or may not be able to prove an actual money loss, it may grant a small amount of damages.
- Punitive damages are the reimbursements that the breaching party has to provide to compensate the other party fully. The court awards these damages due to the wrongful act of a party, and they are pretty rare in the business contracts setting.
- Liquidated damages: Contracts specify liquidated damages in advance as a failsafe if one party breaches the contract. However, there should be a reasonable estimate of actual losses resulting from a breach.
If the damages cannot be compensated in monetary terms or are inadequate 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, the court may award specific performance as relief only if the subject matter of the contract is rare and the damages are insufficient to restore the aggrieved party’s position.
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 in 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. The reason is 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 [email protected].
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