Business, Legal

Types and Repercussions of Contract Breach

When it comes to a contract breach, two elements must be proven. First, the privity of the contract must be established. Then, it must be shown that specific terms within the contract still need to be met. There are several techniques to fix breaches, depending on their nature. 

Types of Breach

A contract establishes a legal obligation between parties, and failure to fulfill that obligation results in a breach of contract. The most common consequence of a breach is monetary damages. These are known as compensatory damages and aim to put the harmed party in the same position they would have had the breach not occurred. Hiring a breach of contract lawyer could ensure that your rights are protected and you can navigate this complex case.

Several other consequences can be awarded, depending on the severity and nature of the breach. These include specific performance, liquidated damages, and terminating the contract. The anticipatory breach is a less common form of breach and is when one party suggests, through words or actions, that they will fail to perform as they should. It can cause anxiety in the non-breaching party, and they can sue for anticipatory breach of contract.

Minor Breach

A minor breach is when the overall deliverables of a contract have been achieved but not to the exact standard originally agreed upon. It could be as simple as substituting butter for the brand specified in a contract. The non-breaching party must still prove that they suffered a loss, and the damages awarded may be compensatory damages, restitution, or specific performance, depending on the type of breach.

Compensation may cover any direct financial losses due to the breach of contract Anthem AZ, for example, hiring a temporary staff member to handle work that was not done or lost revenue due to a delay in delivery. It differs from a fundamental breach, which entitles the non-breaching party to terminate the agreement.

Material Breach

A material breach prevents the non-breaching party from receiving the benefit they expected under the contract. For example, a manufacturer could break a contract by substituting a part that doesn’t work as well as the one specified in the contract for another part that may function just fine. In a contractual dispute, the innocent party must demonstrate that they experienced a loss due to the violation to be awarded damages.

Typically, this means proving that they could not use the goods or services they received because of the breach and that they incurred costs due to the defective goods. They must also show that they took steps to mitigate their losses.

Punitive Damages

In the legal system, punitive damages are monetary judgment and compensatory damages to punish defendants who engage in intentional or malicious behavior. They are designed to deter other defendants from behaving in similar ways. Consequential damages are trickier to determine but typically cover any direct financial losses caused by the breach of contract.

For instance, you may be entitled to consequential damages if your cupcake business suffered a loss of revenue for the week while you awaited a delivery. Parties wishing to avoid the uncertainty of compensatory damages can include liquidated damages provisions in their contracts. These set a specific amount that the breaching party must pay in case of a breach and can save the non-breaching party the expense of determining their actual damages.

Liquidated Damages

Some contracts may include a provision that if one party breaches the contract, they will pay liquidated damages. It is a predetermined amount that the parties have agreed upon in advance of the breach. Liquidated damages are designed to estimate the non-breaching party’s losses reasonably and should be calculated in good faith. If the courts find that the liquidated damages are not a reasonable estimation, they will likely reduce or disapprove them altogether.

Other remedies may include compensatory damages to address the direct economic losses stemming from the breach. They can also award punitive damages if the court finds the breach egregious or harmful. In rare cases, a court might rule for specific performance, where the breaching party must perform the contract terms as promised.