Countless new contracts are signed every day, especially among businesses. However, just because people sign contracts every minute of the day doesn’t diminish their value or importance to companies and organizations worldwide.
A well-written contract protects all involved parties by providing clarity and certainty about each party’s rights and obligations. That said, the primary purpose of contracts is to outline the legal obligations of each party, formalize new relationships, extend existing ones, and even close transactions.
However, what happens when a breach of contract occurs? Let’s explore the most common contract breaches and discover how to deal with them.
Breach of contract explained
First things first, we must uncover what constitutes a breach of contract. A breach of contract is any violation of a contract’s agreed-upon terms and conditions. That means various kinds of violations can be a breach of contract – from late payments to the failure to deliver promised assets.
Since a contract is a legally binding document, it holds weight in court.
Therefore, companies and individuals can take the case to court if a breach of contract occurs. If there’s enough proof that presumed activity occurred, victims should receive what they were promised shortly after. In rare cases, they can also receive punitive damages.
Elements of a contract breach
Every well-drafted contract clearly defines the following features:
- An offer;
- Mutual acceptance of the terms and conditions;
- Proof of both parties of the contract acceptance;
- Mutual intent that the document is legally binding.
If a party breaks any of the terms stated in the agreement, a breach of contract happens. Although a breach of contract can have various elements, the most common are:
- Failure to complete a project on time;
- Failure to provide payment on time;
- Failure to meet the standards found in the contract;
- Failure to complete the project as presented in the contract.
In some instances, parties outline the consequences of contract breaches in the contract itself.
For example, parties can agree that every late payment will require an additional $30 fee alongside the original payment amount. If there are no specific details about potential violations, the parties can solve the issue themselves.
The most common breaches
If you’re interested in learning about the most common breaches of contract, check out the top five you might encounter.
Anticipatory breach
An anticipatory breach happens when a party states it won’t be able to deliver some obligations or act on terms drafted in the agreement. Since this breach occurs in advance and notifies the other party about the circ*mstances on time, it’s one of the easiest breaches to solve.
Namely, parties can modify the terms and conditions of the existing contract, create a new one, or maybe consider legal action.
Actual breach
In the case of an actual breach of contract, one party fails or refuses to perform the activities and obligations outlined in the agreement.
That way, the party is directly causing harm to the other party bound by the contract, whether refusing to pay an agreed-upon amount or to provide services stated in the document.
Partial breach
A partial breach, also known as a minor or immaterial breach, is related to the due dates when a service or an item was supposed to be delivered. For example, if a party receives the services or items after the due date, a partial breach of contract has happened.
Therefore, we can say both parties received what they signed up for in a partial breach, only not on time. The damaged party can then seek damages, but only if it proves that the partial breach of contract resulted in a financial loss or some other kind of consequence.
Fundamental breach
In the case of a fundamental breach, one party fails to fulfill certain aspects of the agreement that are fundamental for the other party to conduct its responsibilities defined in the contract.
Since failing to complete essential activities affects the other party’s ability to perform their duties, it’s evident why this type of breach is named a fundamental breach. Neither of the parties can carry out their agreed activities.
That said, a fundamental breach often results in the cancellation of the contract.
Material breach
Finally, a material breach happens when a party receives less than promised or something entirely different from what was stated in the contract.
For instance, a material breach is when a company orders 300 copies of tourist guides for a conference but receives only 200 copies or a completely different product, like brochures promoting a university.
A material breach usually causes financial damage to a victim party, whether due to the lack of time or general failure to perform the outlined duties.
Reducing the risks of contract breaches
As you can see, contract breaches can be different, but they all lead to a problematic situation no business wishes to be a part of and tries to avoid. That’s why companies need to do everything in their power to reduce the risks of contract breaches.
Here are some tips on how businesses can decrease the possibility of contract breaches.
Use tools to create the best agreements
In the age of advanced technology, there’s no reason not to take advantage of the available tools. Some of these solutions can help you create the best agreements.
For instance, Contract Eagle allows you to draft contracts, store them in one place, and access them whenever, wherever.
Analyze previous agreements
If you have had to deal with contract breaches in the past, it’s helpful to analyze those agreements and identify their flaws. This step will ensure you craft better contracts in the future and prevent any loopholes from limiting your business.
Every mistake is a valuable lesson, but there’s no need to make the same mistake twice.
Ensure everyone understands their responsibilities
The essential purpose of a contract is to help two or more parties define their responsibilities and goals.
Therefore, it’s vital to ensure all parties negotiating the agreement know their responsibilities and understand all the terms and conditions drafted in the legally-binding document. If parties involved aren’t on the same page, it’s impossible to avoid a contract breach.
Keep track of contract performance
An easy way to avoid contract breaches is to monitor the ongoing performance of both parties, including your business and the counterparty.
By proactively keeping track of the performance, contract managers can ensure the parties respect the terms and conditions or take the necessary action before more severe damage occurs.
Make contracts accessible
No one expects you or your counterparty to memorize all obligations and terms defined in the contract. However, both parties will have to go back to the contract every now and then to keep up with their responsibilities and ensure they meet all contract conditions and deadlines.
When contracts are easily accessible, referring to them becomes much more straightforward.
Send a breach of contract letter
A breach of contract letter is a document that notifies the party about how they failed to perform certain duties outlined in the contract, meet the deadlines, or uphold any of the other terms stated in the agreement.
Sending out a breach of contract letter is an excellent step to warn the violating party before taking any legal action regarding the issue.
Set up reminders
Are you worried that you’ll miss an important deadline or fail to realize when the contract is coming to an end? Reminders can help.
You won’t have to stress over those dates because reminders will inform you about any upcoming deadlines. When all parties involved set up reminders, it’s much easier to stay on top of all activities and reduce the risk of a contract breach.
Conclusion
No business likes to deal with contract breaches. Not only are they a hassle to solve, but they also come with financial losses most of the time.
Are you interested in finding a solution that’ll help you keep up with all your contracts while minimizing the cost and effort of contract management?
Contract Eagle is packed with countless helpful features, such as AI contract review, contract reminders, digital signing, and document automation software. Your entire team can sit back and relax since Contract Eagle is here to ensure everything goes according to plan.
