Introduction

A breach of contract sounds dramatic, and well, that’s because it is. In simple terms, a breach of contract happens when one party fails to complete their promises under a contract. This could mean not performing a task on time, not doing what was agreed upon, or doing something that contradicts the contract terms. When a breach occurs, the non-breaching party may be entitled to take legal action to enforce the contract or seek compensation.

Let’s get into further detail about what a breach of contract is, why it’s important in business, and what you can do if it happens to you.

Why is a breach of contract important?

Understanding a breach of contract is crucial because it can affect your business relationships, finances, and legal rights. When a contract is broken, it can lead to disruptions, losses, or other problems, so knowing how to handle it is vital. Here’s why it matters:

1. Protects your interests: Knowing what a breach is and how it works helps you defend your rights if the other party fails to meet their commitments.

2. Helps you choose the right action: Understanding the different types of breaches and their consequences can guide you on whether to negotiate, mediate, or take legal action.

3. Reduces future problems: Being aware of potential breaches allows you to create clearer contracts, set out remedies, and lower the risk of disputes later on.

Types of breach of contract

Not all breaches are the same. Here are the most common types:

• Minor (partial) breach: This happens when a party doesn’t fulfill a small part of the contract, but the main goal is still achieved. For example, if goods are delivered a few days late but it doesn’t cause any serious problems, it’s considered a minor breach.

• Material breach: A material breach is a major failure to perform under the contract that affects its main purpose. This type of breach allows the non-breaching party to seek compensation or end the contract. For example, if a contractor doesn’t finish a project on time and this leads to a big financial loss, it would be a material breach.

• Fundamental breach: A fundamental breach is very serious and allows the non-breaching party to terminate the contract and seek damages. This happens when the breach affects the core of the agreement. For instance, if a supplier delivers products that are completely defective and cannot be used, it’s a fundamental breach.

• Anticipatory breach: An anticipatory breach occurs when one party makes it clear, through words or actions, that they won’t fulfill their obligations. This allows the other party to treat the contract as broken right away and seek remedies.

Example of a breach of contract in a business context

Imagine your company hires a web developer to create a new website with a strict deadline of June 30th, and the contract specifies that time is of the essence. As the deadline approaches, the developer informs you they won’t be able to complete the project until August. This is an anticipatory breach—it's clear they won't meet their obligations, and you have the right to treat the contract as breached.

You might choose to find another developer immediately to avoid further delays and claim damages from the first developer for any extra costs incurred or losses suffered due to the breach.

What to do if you encounter a breach of contract

If you find yourself facing a breach of contract, here are steps you can take:

1. Review the contract: Check the contract terms to understand what constitutes a breach and what remedies are available. Many contracts outline specific breaches and the actions that can be taken.

2. Communicate with the breaching party: Contact the other party to discuss the breach. They might be unaware of the issue or willing to resolve it without legal action.

3. Document everything: Keep detailed records of the breach, including emails, letters, and any other relevant communication. Documentation is key if you decide to pursue legal action or seek damages.

4. Consider your options: Depending on the severity of the breach, you might choose to negotiate a settlement, terminate the contract, or seek compensation through mediation or court proceedings.

5. Seek legal advice: When in doubt, consult with a legal professional. They can help you understand your rights, assess the situation, and decide the best course of action.

How Cobrief can help

Cobrief automates the review of business agreements in minutes for small to medium-sized businesses. Save time, cut legal costs, and sign your contracts with confidence.

Upload your contract to Cobrief's AI contract review software, click review, and you'll get it screened for risks in plain English, helping you decide if you want to sign, reject or negotiate the contract—or escalate it to a lawyer.

Conclusion

A breach of contract can have a big impact on your business, from hurting your profits to damaging your reputation. Knowing what counts as a breach and how to handle it helps you protect your interests, reduce risks, and maintain strong business relationships.

When you’re drafting or reviewing a contract, pay attention to the terms and conditions that could lead to a breach. Staying ahead of these issues can help you avoid problems down the road and keep your business running smoothly.