What Is Breach of Contract? Definition and Examples

At some point, almost everyone is a part of a contract that requires each party to perform certain obligations. A breach of contract occurs when one or both parties fails to live up to their agreed-upon terms without a legal reason. A late payment or failure to deliver a project on time are everyday examples of contract breaches. When that happens, it's important to understand breach of contract basics. Knowing your legal rights can help you make informed decisions and protect your interests. 

What is a breach of contract?

Failure by either party to meet their contractual commitment constitutes a breach of the contract. A breach case can result from substandard performance on a job, incomplete tasks, or failure to make payments.

As per contract law, a breach occurs only when:

• There is a valid oral or written contract agreed to by both parties involved.
• There is a failed promise by at least one party.
• The performing or aggrieved party suffered damages as a result of the breach.

A breach of contract can result in financial loss or damage to a party's reputation, but it’s not considered a criminal offense or a tort. Therefore, in a breach of contract lawsuit, it's rare for a judge or jury to award punitive damages for one party's failure to deliver.

Types of breach of contract (with examples)

There are two ways in which a breach of contract may be classified—by the seriousness of the breach or by when the breach occurs.

Minor breach

Sometimes called a partial or immaterial breach, this breach does not significantly impair the benefit to the non-breaching party. A minor breach may or may not allow the non-breaching party to pursue legal remedies, depending upon whether a financial loss can be proven.

For example, Margie's Catering Service agrees to deliver food to Susan by 9 a.m. on Saturday for a party Susan is giving at noon. The food isn't delivered until 9:30 a.m. but is still ready to be served at the scheduled time. The failure to deliver on time is technically a breach of the contract, but it did not result in any financial injury to Susan. Therefore, Susan is obligated to pay the full catering expenses.

Material breach

A material breach is a more severe type of breach as it significantly impairs the benefit of the contract to the non-breaching party. A material breach allows the harmed party to consider the contract ended and to pursue legal action. Say you are to deliver 500 perfume boxes with a golden embossed logo to a client by December 1. The client gets the boxes on time, but the logos are completely incorrect. In such an instance, you may be obligated to pay for economic damages resulting from incorrect logos.

Actual breach

This is the most common type of breach. An actual breach occurs when a party fails or refuses to fulfill an obligation when it’s due or as per the method stipulated in the contract. An employee backing out after accepting a job offer or a company only providing half the quantity of products are examples of actual contract breaches. In such cases, the harmed party can terminate the contract and seek compensatory damages.

Anticipatory breach

An anticipatory breach is also known as a renunciation of the contract. This is when a party shows an intention not to fulfill their obligations at some point before performance of the obligation is due. Anticipatory breaches occur when the breaching party informs the other party of the intent not to honor the contract or if the breaching party takes actions that indicate they will not honor the contract. For example, George signs a contract requiring him to paint Phil's house by June 1. On May 21, Phil learns that George has left for a two-week cruise to Alaska, making it obvious that George will not be fulfilling his obligation.

Mutual breach

As you can guess from the name, this type of breach occurs when both parties fail to deliver their promised obligations. For example, say a wedding caterer shows up with all of the meals but forgets to make the dessert, and the newlyweds refuse to pay the caterer at all. Since the caterer agreed to bring food and the couple agreed to pay, both of these parties are now in breach of contract.

How to file breach of contract lawsuits

When a party fails to meet their contractual obligations, you can take legal action.

1. Get legal advice. Legal battles can be stressful and expensive. Therefore, before filing a notice, speak to an experienced contract lawyer to understand the strength of your breach of contract claim.
2. Send a written notice. The second step is to send the breaching party a written notice of the breach. If this fails to bring about a satisfactory resolution of the problem, the next step is filing a lawsuit.
3. Prove the breach. To have a winnable contract case, you must prove to the court that the elements of the contract were violated. Proving that you have a valid contract is generally a matter of producing a copy of the written contract. The difficulty of proving breach of a verbal contract is readily apparent. This may be done by the testimony of one or both parties and of anyone else present when the terms were discussed and agreed to.
4. Prove damages. You also need to prove direct causation between the breach and the damages. Evidence can include financial statements (invoices and receipts), all communication (emails and text messages) between the two or more parties, or witness statements.
5. File a complaint. The legal process kicks off with a complaint that outlines the nature of your case, including the parties involved, contract details, and a description of the breach. 
6. Identify the correct jurisdiction. The right jurisdiction to file a complaint for your case is usually in the geographical area where the contract was executed or breached. 
7. Exchange information. This phase is also known as discovery. Both parties exchange relevant information and evidence to prepare their cases, which can involve depositions, interrogatories, and requests for documents.
8. Go to trial. In a trial, both sides present their arguments and evidence before a judge or jury, who delivers the final decision.

What to do if you're accused of a contract breach

If you have been accused of a contract breach, take the following steps to understand the situation:

• Review the contract. Go back to your contract to understand which terms were specifically breached. Assess the legal validity of the case by checking if all the elements of a breach (such as financial loss and valid contract) are met.
• Gather documentation. Prepare documentation and communication that proves your performance (how you held up your side of the deal).
• Communicate with the other party. Reach out to the other party to understand their stance and see if the issue can be settled without further legal action.
• Seek legal advice. Even a minor breach can become a complicated issue if it’s not handled properly. A contract lawyer can set you on the right path and protect your rights. When the financial stakes are high or issues are complex, it’s worth the investment to consult with a lawyer specializing in contract law.
• Consider mediation or arbitration. Depending on the type and severity of the breach, you can opt to resolve the matter through alternative dispute resolution (ADR) methods like mediation or arbitration, which tend to lead to faster resolutions. 
• Prepare for litigation. If you can’t reach a resolution through negotiation or mediation, be prepared to defend your case before a judge and jury. Hire an experienced attorney to help you build a strong legal strategy.

Remedies for a breach of contract

If one party can prove that a valid contract was breached and they suffered a loss, they may be entitled to a remedy. In contract law, the purpose of a remedy is to get the wronged party back to the same economic position they were in before the breach. Below are monetary and non-monetary legal remedies usually offered to the innocent party.

Damages

In most cases, the remedy is the payment of monetary damages by the breaching party, which can include:

• Compensatory damages. This is a financial payment for the direct economic loss as a result of the breach. One can seek compensatory damages for lost sales or the cost of finding a replacement product/service.
• Consequential damages. These are indirect damages for economic losses that were reasonably foreseeable but not directly caused by the breach. A landlord can seek consequential damages from a contractor that delayed the opening of their building, which caused them to lose out on rent.
• Attorney's fees. If either the law or the terms of the contract allow, the party losing the lawsuit may be ordered to pay the winning party's attorney's fees.
• Liquidated damages. These are damages stated in the contract that the parties agree will be owed in the event of a breach without having to prove losses suffered. Liquidated damages could be a predetermined daily penalty or lump sum amount.
• Nominal damages. Minimal or token damages are awarded for a minor breach where no substantial financial loss is incurred.

Specific performance

This is where the breaching party is ordered by the court to fulfill their obligations under the contract. This "injunctive relief" is common in cases involving unique or irreplaceable goods, such as real estate or rare artwork. Each real estate property and piece of art has distinctive features, and usually, no amount of money can make the injured party whole, especially if it holds sentimental value.

Reformation

This is where the court changes or reforms confusing or poorly written terms of the contract to try to reflect the actual intent of the parties and achieve a just result. For instance, if a utility easement is incorrectly described in a property deed, reformation can fix the contract to align with the parties' true intentions. 

Rescission and restitution

This remedy cancels the contract and orders the breaching party to take actions designed to return the non-breaching party to their position before the contract was created.

Rescission is common in contract cases where the non-breaching party feels the mutual agreement is irreparably breached and, therefore, they wish to get out of the binding agreement.

Restitution is a remedy provided when the non-breaching party benefits the other party, and the law aims to reverse the unfair enrichment. Here is a real-life example. Say you paid a $2,000 deposit for a car, but the dealership fails to provide you with the car. You can ask for a refund. 

Tips to prevent breach of contract

Contracts are a part of everyday life and the possibility of unexpected contract breach may feel like a heavy weight. Don’t worry—with careful measures, it’s possible to prevent a breach of contract and protect your interests.

• Ensure clarity and thoroughness in the contract language. Don't use vague terms or assume the other party understands what you mean. Include details about responsibilities, deadlines, payment terms, and performance standards in the contract. Also, if English isn’t the other party’s native language, work with an interpreter to ensure they understand what they are getting into.
• Manage expectations and communicate effectively. Clear and continuous communication between both parties may even help prevent a breach in the first place. Use email, instant messaging, or even project management apps to get updates on anything that may impact deliverables. 
• Verify the other party's credibility and capability by conducting due diligence about their past performance and reputation. This step can identify risks and ensure you are entering a legally binding contract with a reliable party. Read reviews or speak directly to their previous customers. You can also request the other party's financial statements to judge their financial stability.
• Get the contract reviewed by an experienced attorney who can identify confusing language, loopholes, and potential risks. LegalZoom's Contract Review Service gives you access to experienced contract attorneys who will provide personalized recommendations for a flat fee.
• Ensure legality of contract. Important elements of a legally binding contract are evidence of offer and acceptance, the mental capacity of each involved party, and consideration. 

FAQs

How do I prove a breach of contract in court?

You can prove a breach of contract by presenting evidence like an actual, legally binding contract or witness statements (if it was an oral contract). Any communication in emails or messages can also aid your case. You can also show financial statements highlighting the damages suffered as a result of the breach.

What is a breach of contract letter?

A breach of contract notice or letter is a written document that informs a party of a breach. The letter typically describes the details of the breach and offers a "solution" or way to fix the issue while keeping the original contractual agreement in place. 

How long do I have to sue for breach of contract?

Under state laws, the statute of limitations for breach of contract typically requires that a lawsuit for breach of contract must be filed no later than four years from the date of the breach. So, if your contract was breached on October 25, 2024, you have till October 24, 2028, to file a lawsuit.

What’s the most common award for breach of contract?

Compensatory damages are most commonly awarded in breach cases. Usually, the person who has breached the contract will be asked to pay an amount that will allow the harmed party to seek the services elsewhere.

If a designer, for example, promised to design your business logo for $250 but didn't follow through, you may receive $250 in compensatory damages. The $250 will allow you to hire another designer.

Edward A. Haman, Esq. contributed to this article.