In the world of business, a contract is more than just a piece of paper; it’s a legally enforceable promise. It’s the foundation of trust between partners, clients, and vendors. But what happens when that promise is broken?
A broken contract, known as a “breach of contract,” can be devastating. It can cost you money, waste your time, and damage your company’s reputation. Knowing your rights is the first step to protecting yourself.
This guide will explain what constitutes a legal breach of contract, the different types of breaches, and the steps you can take to seek a legal remedy.
Disclaimer: This article is for informational purposes only and is not a substitute for legal advice. Contract law is complex and varies by state. If you believe you are a victim of a breach of contract, you should consult with a qualified business litigation attorney to discuss your specific case.
First, Do You Have a Valid Contract?
Before you can claim a “breach,” you must prove you had a valid contract in the first place. A contract is not just any agreement; it must contain four essential elements to be legally enforceable:
- Offer: One party made a clear proposal to another. (e.g., “I will build you a website for $5,000.”)
- Acceptance: The other party clearly accepted the offer’s terms. (e.g., “I agree to that price and timeline.”)
- Consideration: Something of value was promised in exchange. This is the “skin in the game.” (e.g., The $5,000 is exchanged for the website.)
- Intent to be Bound: Both parties understood they were entering a legal agreement.
While written contracts are always superior, verbal agreements can be legally binding contracts in many situations (though they are far more difficult to prove in court).
The 4 Main Types of Breach of Contract
Not all breaches are created equal. The law classifies a breach based on its severity, which in turn dictates your legal options.
1. Material Breach (A “Total” Breach)
This is the most serious type of breach. A material breach occurs when one party’s failure to perform is so significant that it defeats the entire purpose of the contract. The non-breaching party is not only entitled to sue for damages but is also excused from their side of the bargain.
- Example: You hire a construction company to build a house and pay them a deposit. They never show up to start the work. This is a material breach. You can sue for your money back, and you are obviously not required to pay them another dime.
2. Minor Breach (An “Immaterial” or “Partial” Breach)
A minor breach occurs when one party fails to perform a small, non-essential part of the contract. The “main event” of the contract is still delivered, but with a minor flaw or delay.
- Example: You hire a company to build a website and specify it must launch on March 1st. They deliver the fully functional website, but it launches on March 2nd. This is likely a minor breach. You can’t scrap the whole contract and refuse to pay. However, you can sue for any damages the one-day delay caused (perhaps you lost sales, which you would have to prove).
3. Anticipatory Breach (A “Repudiation”)
This is a unique type of breach where one party clearly states—through words or actions—that they will not be performing their contractual duties before the deadline has even arrived.
- Example: You have a contract for a supplier to deliver 1,000 units on October 31st. On October 1st, they email you: “We have shut down that division and will not be delivering your units.”
- You do not have to wait until October 31st to be damaged. You can declare an anticipatory breach immediately and sue for damages. This allows you to find a new supplier and recover any extra costs.
4. Actual Breach
This is the simplest form. It’s when a party simply fails to perform their obligations by the due date. (e.g., The contract says “payment due on the 1st,” and the 1st passes with no payment).
What to Do Before You Sue: Your First Steps
A lawsuit should be your last resort. It is expensive and time-consuming. Before calling an attorney, you should take these steps:
- Review the Contract (Again): Read every word. What does it say about a breach? Are there penalties? Is there a “cure” period (a chance to fix the problem)? Is there a mandatory mediation or arbitration clause?
- Contact the Other Party: A formal, professional phone call or email can sometimes resolve the issue. It may have been a simple misunderstanding.
- Send a Formal Demand Letter: If informal contact fails, your next step is a demand letter. This is a formal letter (often sent by your lawyer for maximum impact) that:
- States how the other party breached the contract.
- References the specific sections of the agreement.
- “Demands” a specific solution (a “cure”), such as payment or performance by a new deadline.
- States that you will pursue legal action if the demand is not met.
Often, a demand letter from a law firm is enough to get the other party to take the issue seriously.
Suing for Breach of Contract: What Can You Win?
If all else fails, you can file a civil lawsuit. If you win, the court will award a “remedy.” The most common remedy is damages (money).
- Compensatory Damages: This is the main goal. The court will award you an amount of money designed to make you “whole” again—that is, to put you in the exact financial position you would have been in if the contract had been fulfilled.
- Liquidated Damages: Sometimes, the contract itself specifies the exact penalty amount for a breach. These are common in construction contracts.
- Specific Performance: In rare cases (usually for unique items like real estate or a one-of-a-kind piece of art), a court won’t award money. Instead, it will order the breaching party to do exactly what they promised.
Protecting Your Business
A contract is the lifeblood of your business. When one is broken, it’s not just business—it’s personal. If you’ve sent a demand letter and haven’t gotten a response, it’s time to act. A business litigation attorney can review your contract, assess your damages, and fight to recover what you are owed.