What Are The Types of  Contractual Breaches?

What Are The Types of Contractual Breaches?

Written By
Joy Cunanan
Updated on
October 18, 2022
Reading time:
0
minutes

No one wants to be caught unawares when it comes to contractual obligations, deadlines, and other commitments, at risk of breaching the said contract and paying a hefty penalty for a brief lapse in memory. 

Contracts are challenging to navigate, particularly when shifts in cooperation are brought on by changes in the internal or external environment. It is possible for an employee to choose not to fulfill a commitment they made. On the other side, as an employer, you might have discovered that a party did not carry out the expected obligations under the contract. But from a legal perspective, what precisely do these actions (or lack thereof) mean? It will be helpful for you to be aware of the four different sorts of contract breaches you could experience, whether you're an employer or an employee.

In this article, we will talk about the types of breaches, building up on our knowledge of what a contract is and how it becomes legally enforceable.

Get regular updates about contract management and digital transformation!
Thank you!
You email has been subscribed to our newsletter.
Oops! Something went wrong while submitting the form.

How Does A Contract Breach Occur?

We have previously deep-dived on contracts in this article, where we discussed the five essential elements to make a contract valid. With that in mind, we can derive the definition of a breach of contract, which occurs when a contractually-binding agreement is broken by one or more parties. A breach of contract claim has four components, which are as follows:

  1. lawful contract's existence;
  2. performance made by the plaintiff or that which was offered;
  3. Defendant's significant breach (they failed to follow through on their agreement); and
  4. the plaintiff's losses brought on by that violation.

In these situations, if you think a contract has been broken, you should first determine the type of breach that has taken place in order to decide what kind of legal action is required.

What Are The Types of Breach?

Minor Breach

Minor breaches, also known as immaterial breaches or partial breaches, occur when the 

essential elements of a contract were fulfilled but a small portion of the duty was not, or if, despite the fact that the agreed-upon product or service was eventually delivered, one party breaches certain of the contract's terms.

Legal action is occasionally an option, but it might be difficult to prove damages in the case of a minor infringement. In certain situations, the party who was violated may only be able to seek legal recourse if they can demonstrate that the violation led to monetary losses. If the party breached cannot prove that the delay had a financial impact, there may be no recourse for late delivery. 

Illustration #1

You ordered an entire personal computer setup. When the parts were delivered, a screw was missing. If the party responsible for delivery sends over the missing screw promptly, there is no damage done to you, who consequently cannot claim any compensable loss against the seller. 

Illustration #2

You ordered casual wear from Shopee, an online selling platform. There was a delay in the shipment due to some customs mixup. Minor conveniences aside, this delay caused no financial loss on your part. You eventually received the items you ordered, just a few days late. This is considered an immaterial breach and will not be subject to damages given the circumstances. 

Material Breach

The most serious kind of contract violation is a substantial breach. This kind of breach typically occurs when a crucial component of a contract is not carried out or given as agreed.

In some circumstances, more complicated contracts will actually specify what constitutes a material breach of contract and what does not. However, a standard contract does not usually specify what constitutes a material breach of that agreement.

To assess if such a failure to execute is material, the following conditions must exist:

  1. How much of the advantage that the injured party may have reasonably anticipated will be withheld;
  2. The degree to which the party who was hurt can receive suitable compensation for the portion of that advantage they will lose;
  3. The amount to which forfeiture will be suffered by the party who fails to perform or who fails to offer to perform;
  4. The possibility that, after taking into account all the facts, including any reasonable assurances, the party failing to perform or offering to perform will remedy their failure; and
  5. The degree to which the conduct of the party refusing to perform or offering to do complies with good faith and fair standards.

Illustration #1

You contracted a wedding planner to have everything done by your wedding date. The wedding planner was not able to meet the deadline of your wedding date, This is a material breach, and you may take legal action. 

Illustration #2

You bought a PS5 and only received the controllers. You have a recourse in the law for a material breach committed by the seller who delivered it. 

Actual Breach

An actual breach of a contract is one that has already taken place, in which case the offending party has either neglected to discharge their responsibilities by the deadline or has done so in an ineffective or improper manner.

When it's time for one party to fulfill their end of the bargain and they do it negligently or insufficiently, that is a real breach of the contract.

The party who has been wronged has a few possibilities for redress if this kind of breach occurs. This can include monetary compensation for any immediate or direct economic losses brought on by the breach. to indirect losses brought on by the breach that are greater than the contract's worth.

If a breach occurs, the opposite party may pursue a number of different remedies. These include compensatory damages to cover any direct economic losses resulting from the breach as well as consequential losses, which are indirect costs resulting from the breach that is greater than the contract's face value.

Illustration #1

When a vendor receives payment for a shipment of goods, they either fail to deliver them or send the incorrect goods.

Illustration #2

A service is purchased, but either it is never provided or it is of poor quality and results in business loss.

Anticipatory Breach 

An anticipatory breach is when one party knows that the other party will not fulfill their obligation under the contract in the future, as opposed to an actual breach, which often looks at a failure to perform that has already occurred. In this situation, the non-breaching party has the right to void the agreement and bring a damages claim before the breach really occurs. When one party makes a declaration that they won't carry out their end of the contract before the performance deadline, this is a common example of anticipatory breach.

An anticipatory breach occurs when one of the contracting parties admits they won't be able to carry out their end of the bargain before the deadline.

Therefore, this typically occurs when the party who is in breach notifies the other party of their inability to comply with the terms of the contract.

And although this is arguably the least frequent of the four contract violations, the harmed party is nonetheless entitled to legal recourse.

Illustration #1

An anticipatory breach of a contract occurs when a service is provided on a monthly basis but the recipient claims they won't be paying for that month but still anticipate the service.

Illustration #2

It is impossible to meet a deadline because of architects. In other words, they stop working on one project and devote all of their time and energy to a brand-new one with a different developer. The initial developer would have grounds for suing the architects.

Never Miss A Contractual Obligation Again with Lexagle.

Lexagle’s proprietary software will ensure that your company never misses any obligation and that you comply with all of your contractual commitments in a timely manner. Founded by a team of lawyers and tech experts, we merge our legal expertise and technical know-how to build a reliable software powered by artificial intelligence and comprehensive automation to reduce time-consuming tasks and allow your team to focus on what truly matters. 

Book a demo with us today!

What Are The Types of  Contractual Breaches?
Author
Joy Cunanan
Joy is the Digital Transformation Manager at Lexagle. As a marketing professional in the Tech and B2B industry for over seven years, she is always on the lookout for the next best solution in the ever-changing online world. With a passion for helping businesses thrive and optimize operations, she shares her expertise in the power of contract lifecycle management and its capacity of easing the contracting process for busy organizations worldwide.

Related Articles

Streamline your contract management process with Lexagle and accelerate your business.

Contact us for a short demo today, and to discuss how Lexagle can best fit your organization’s needs!