Contracts are binding agreements, which participating parties sign. They are often used in business arrangements in order to avoid later legal hassles and conflicts. When both sides honor the agreement, they both know what to expect from the other. However, a breach of contract occurs when one of the parties fails to honor the agreement by not doing what they agreed to do or by interfering with the other party’s performance.
Types of Breach
There are different ways a person or company could violate the agreement. A minor breach, as it implies, is a partial or immaterial violation of the contract. This action is so small the non-breaching party can’t sue for specific performance and can only sue for damages. A material breach is significant enough for the non-breaching party to compel performance or collect compensations. In this case, the breaching party completely failed to abide by the terms. Afundamental breach is the most damaging. If a breaching party commits a fundamental breach, the non-breaching party can terminate the contract and sue for reimbursement. Lastly, an anticipatory breach is a violation known in advance, meaning the breaching party will not perform or is in a situation in which non-performance is unavoidable. If this happens, the non-breaching party can treat the violation as immediate, if fundamental, to terminate the contract and sue for damages (before the breach even takes place).
Damages and Equitable Remedies
If a contract was violated, it must pay compensation and/or correct the situation in a specific performance. There are 4 types of damages possible:
- Compensatory
- Punitive
- Liquidated
- Consequential/special
Compensatory damages are designed to ease any economic loss caused by the breach of contract. Punitive damages, on the other hand, are designed to punish the breaching party to discourage them from breaching the agreement again. Liquidated damages are specified in the agreement, meaning that a particular number or action was written into the document and must be fulfilled by the breaching party. Consequential (or special) damages are proven to have occurred because of the breach of contract, including loss of product or loss of profit.
Equitable remedies are court-ordered actions or inactions the breaching party must follow. These include:
- Cancellation of the contract
- Reformation of the contract
- Specific performance (when the court orders the breaching party to uphold the contract)
