Contracts are essential for business transactions. So there may be legal and financial complications or even business and civil litigation when a party breaches a contract by violating any of its agreed-upon terms and conditions.
A breach of contract occurs when one of its parties violates any of its terms. This includes untimely completion of a contract obligation, such as a late payment. It also occurs when a term is unfulfilled such as a service not being performed.
Contracts may define conduct that constitutes a breach and agreed-upon consequences. When this occurs, the parties may settle the situation by entering a new contract, participating in adjudication, or engaging in another resolution.
Types of breach
A minor breach of contract is when a service or item is not completed or delivered by the due date. A material breach is when a party delivers something or renders a service that is different than what was set forth in the contract.
A breach of contract also falls within two categories. An actual breach occurs when a party refuses to complete perform the contracts terms. An anticipatory breach is when a party says in advance that they will not comply with the contract.
The legal process for seeking a remedy
A plaintiff who files a breach of contract legal claim must establish that a contract existed between the parties and how the defendant violated the contract’s terms. Usually, plaintiffs must notify a defendant in advance that they breached the contract before proceeding with a lawsuit.
The plaintiff must also show that the contract is valid. Typically, a valid contract is signed by both parties. Oral contracts are also enforceable in some circumstances. But written contracts are required in specific circumstances including the sale of good over $500, the sale or transfer of land and contracts that stay in affect for over one year. Courts will review whether each party fulfilled their contractual obligations and determine whether the contract contains modifications that could have caused a breach.
Courts will also consider whether there was a legal reason excusing the breach such as whether the plaintiff misrepresented or concealed important facts, or whether the defendant signed the contract under duress. Mistakes by either party may also contribute to the breach.
Financial considerations are important in such a situation
The costs and benefits of complying with or breaching a contract play a role in these cases. A party may have an economic incentive to commit a breach if the net expected cost of a breach is less than fulfilling the contract. Parties have an incentive to comply with the contract if the cost of a breach is higher than compliance.
Both parties may agree to void the contract if they believe their compliance costs more than any contractual benefit. This occurs when market conditions or other conditions change over the term of the contract.
Attorneys can provide options in contract disputes. They can also help protect a party’s rights if these cases go to court.