Contract breaches are potential risks for any party involved in a legal agreement. If your company deals with large numbers of contracts, it is likely that at some point in time, you will have to navigate a contract that fails to deliver on the terms of the agreement. Since contracts are legally binding, actions can be taken to rectify the issues. The first and most important step in resolving a breaded contract is recognizing that a breach occurred. Read on to learn the types of contract breaches, common examples, and how to deal with them.
Types of Breach of Contract
Anticipatory Breach of Contract vs Actual Breach of Contract
An anticipatory breach of contract is a breach that has been indicated but not yet enacted. This happens when one party notifies the other that they will not fulfill the agreement, or when one party behaves in a way that shows they do not intend to or will not be able to fulfill their obligations.
An actual breach of contract is a breach that has occurred. In this case, a party has refused to fulfill their agreement in the specified time frame, they have not completely fulfilled the agreement, or they improperly fulfilled the agreement.
Partial Breach of Contract vs Material Breach of Contract
A partial breach of contract is also referred to as a minor or immaterial breach of contract. A partial breach of contract occurs when a party ultimately delivers on the agreement, but still fails to fulfill some aspect of the contract. The party that suffered the partial breach of contract may only be able to pursue restitution if the partial breach resulted in financial damages.
A material breach of contract involves one party receiving a different or insufficient result than what was articulated in the contract. This type of breach can include a failure to perform the obligations in the agreed time frame or a failure to perform the obligations to the agreed standard. When a material breach occurs, the other party can pursue damages to cover both the direct and indirect consequences of the transgression. In most material breach cases, the non-breaching party is no longer bound by the contract and is entitled to remedies.
Common Examples of Breach of Contract
Let’s use the example of home construction. If you contracted to have a new home built, an anticipatory breach of contract could involve a contractor abandoning the site and moving all of their resources to a different project. An actual breach could involve the contractor failing to meet a deadline. A partial breach could involve the contractor building the entire house, but installing the wrong tile in the bathroom. A material breach of contract could involve the contractor using materials inferior to the ones specified in the contract.
How to Deal With Breach of Contract
If you experience a breach of contract, you may be entitled to remedies that compensate for loss. There are two types of damages. Expectation damages cover the market value of the failed deliverables agreed upon in the contract. Consequential damages cover the indirect losses that resulted from the breach of contract.
Reduce Your Risk
The best way to deal with a breach of contract is to reduce the risk of a breach occurring. Although you cannot control the actions of the other party, there are actionable steps that can reduce your risk of experiencing a breach of contract.
Drafting strong contracts in an important way to reduce risk. To understand the clauses and terminology that best reduces vulnerabilities, you can analyze past agreements. If a contract did not deliver the expected results, it can be helpful to review the wording and avoid problematic language in the future. On the flip side, successful legacy contracts can serve as templates for new agreements.
Sometimes contract breaches result from communication gaps. To avoid gaps in communication, it is important that the individuals negotiating the contract and the individuals who are responsible for fulfilling the contract are all on the same page.
Maintaining contract visibility and monitoring contract performance in real time can give valuable insight to potential problems and deliver early warning signs. When a contract is at risk of anticipatory breach, containing losses is a time sensitive matter. When contracts are clearly organized and easily accessible, you can reduce the risk of overlooking an important deadline or task.
Use a Digital Document Platform
To streamline your contract management system and optimize these risk reducing measures, use a digital contract solution. ThoughtTrace revolutionizes the way companies manage and find answers in complex documents. The ThoughtTrace Platform empowers people and companies with the information they need to achieve better outcomes, reduce risk, and capitalize on opportunities. For all of your contract management needs, contact ThoughtTrace!