Breach of contract: Overview, definition and example
What is breach of contract?
A breach of contract happens when one party fails to fulfill their obligations under the terms of an agreement without a valid legal excuse. This can involve not performing on time, failing to perform as agreed, or not performing at all. A breach undermines the agreement and can result in legal consequences, such as damages or termination of the contract.
Breach of contract is one of the most common legal disputes in business, as contracts are central to transactions, partnerships, and day-to-day operations. Understanding how breaches occur and how to address them is crucial for protecting your rights and minimizing losses.
Why is breach of contract important?
Breach of contract matters because it disrupts the agreement between parties and can have serious financial or operational consequences. For the non-breaching party, it means they don’t get the benefit of what was agreed, which can lead to losses, delays, or missed opportunities. Addressing a breach quickly and effectively can help minimize the fallout.
There are different types of breaches—minor (partial performance or small errors) and material (failure to deliver the essence of the agreement). A material breach often gives the non-breaching party the right to terminate the contract and seek damages. Understanding the nature of the breach determines the remedies available and how the situation can be resolved.
Understanding breach of contract through an example
Imagine a software company contracts with a client to deliver a custom application within six months. The client agrees to pay in installments, with the final payment due upon delivery. Five months in, the company informs the client that they won’t meet the deadline because they prioritized other projects. This is a breach of contract because the company failed to fulfill its agreed-upon obligation.
The client could respond by seeking damages for losses caused by the delay, such as hiring another developer to complete the project or losing revenue from not launching the application on time. If the breach is significant enough, the client might terminate the contract altogether and sue for compensation.
On the other hand, if the software is delivered late but meets all requirements, the breach might be considered minor. The client could still seek remedies, but they wouldn’t have grounds to terminate the agreement unless the delay caused substantial harm.
An example of a breach of contract clause
Here’s how a clause addressing breach of contract might look in an agreement:
“In the event of a material breach of this Agreement by either party, the non-breaching party shall have the right to terminate the Agreement and seek any and all damages permitted by law. Minor breaches shall not constitute grounds for termination but may result in reasonable compensation for losses incurred.”
Conclusion
A breach of contract disrupts the foundation of an agreement, causing potential losses and disputes between the parties involved. Understanding how breaches occur and the remedies available can help you protect your rights and address issues effectively.
Whether you’re drafting, negotiating, or enforcing a contract, being clear about the consequences of a breach ensures that everyone involved understands their responsibilities. This clarity helps minimize disputes and provides a path to resolution when things don’t go as planned.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.