Breach of Contract Explained: Types and

Consequences
What Is a Breach of Contract?
A breach of contract is a violation of any of the agreed-upon terms and
conditions of a binding contract. The breach could be anything from a late
payment to a more serious violation, such as the failure to deliver a
promised asset.

A contract is binding and will hold weight if taken to court. If it can be

proved that a contract was breached, the remedy would generally be to
give the victim what they were initially promised. A breach of contract is
not considered a crime or even a tort, and punitive damages are rarely
awarded for failing to perform promised obligations

KEY TAKEAWAYS

• A breach of contract occurs when one party in a binding agreement

fails to deliver according to the terms of the agreement.
• A breach of contract can happen in both a written contract and an
oral contract.
• The parties involved in a breach of contract may resolve the issue
among themselves or in a court of law.
• There are different types of contract breaches, including a minor or
material breach and an actual or anticipatory breach.
• A breach of contract is not considered a crime or even tort and rarely
results in extra monetary compensation.
• Understanding a Breach of Contract
• A breach of contract is when one party breaks the terms of an
agreement between two or more parties. This includes when an
obligation that is stated in the contract is not completed on time—for
example, you are late with a rent payment—or when it is not fulfilled
at all, such as a tenant vacating their apartment owing six months’
back rent.
• Sometimes the process for dealing with a breach of contract is
written in the original contract. For example, a contract may state
that, in the event of late payment, the offender must pay a $25 fee
along with the missed payment. If the consequences for a specific
violation are not included in the contract, then the parties involved
may settle the situation among themselves, which could lead to a
new contract, adjudication, or another type of resolution
Types of Contract Breaches
• Minor breach: A minor breach happens when you don’t receive an
item or service by the due date. For example, you bring a suit to your
tailor to be custom fit. The tailor promises (an oral contract) that they
will deliver the adjusted garment in time for your important
presentation but, in fact, they deliver it a day later.
• Material breach: A material breach is when you receive something
different from what was stated in the agreement. Say, for example,
that your firm contracts with a vendor to deliver 200 copies of a
bound manual for an auto industry conference. But when the boxes
arrive at the conference site, they contain gardening brochures
instead.

Further, a breach of contract generally falls under one of two categories:

• Actual breach: When one party refuses to fully perform the terms of
the contract.
• Anticipatory breach: When a party states in advance that they will
not be delivering on the terms of the contract.

Legal Issues Concerning a Breach of Contract

A plaintiff, the person who brings a lawsuit to court claiming that there has
been a breach of contract, must first establish that a contract existed
between the parties. The plaintiff also must demonstrate how the
defendant—the one against whom a claim or charge is brought in a
court—failed to meet the requirements of the contract.

Is the Contract Valid?

The simplest way to prove that a contract exists is to have a written
document that is signed by both parties. It’s also possible to enforce
an oral contract, though certain types of agreements still would require a
written contract to carry any legal weight. These kinds of contracts include
the sale of goods for more than $500, the sale or transfer of land, and
contracts that remain in effect for more than one year after the date when
the parties sign the agreement.

Courts will review the responsibilities of each party of the contract to

determine whether they have fulfilled their obligations. Courts also will
examine the contract to see if it contains any modifications that could have
triggered the alleged breach. Typically, the plaintiff must notify a defendant
that they are in breach of contract before advancing to legal proceedings.
Possible Reasons for the Breach
The court will assess whether or not there was a legal reason for the
breach. For example, the defendant might claim that the contract
was fraudulent because the plaintiff either misrepresented or concealed
material facts.

The defendant could alternatively argue that the contract was signed under
duress, adding that the plaintiff compelled them to sign the agreement by
applying threats or using physical force. In other cases, there might have
been errors made by both the plaintiff and the defendant that contributed
to the breach.

How to Avoid a Breach of Contract

To avoid a breach of contract lawsuit, you should check any contract you
sign for three things.

1. Clarity: The language of the contract should be clear and precise. If

the other party is not a native speaker of the language the contract is
in, it may be worthwhile to hire an interpreter to ensure that everyone
understands their roles and expectations under the contract.
2. Expectations: You and any other parties signing the contract should
understand the expectations it outlines and already know that you
are able to fulfill them. Your ability to meet those expectations should
not rely on future amendments because those may not happen.
3. Legality: In order to be binding, your contract needs to be legal
where it is signed. If you are not sure, work with a lawyer who
specializes in contract law before anyone commits to signing.

You can also avoid breach of contract lawsuits by carefully selecting the
people or companies that you work with. Take time to research their
professional reputations and legal history. If they have previously been
involved in breach of contract lawsuits, you may not wish to do business
with them.

Damages and Legal Remedies

Generally speaking, the goal of contract law is to ensure that anyone who
is wronged is basically left in the same economic position that they would
have been in had no breach occurred. A breach of contract is not
considered a crime or even a tort, and punitive damages are rarely
awarded for failing to perform promised obligations, with payouts limited to
the figures listed in the contract.12

For example, if you completed a job for which a contract stated you would
get paid $50,000, but you only got $20,000, you could be awarded
damages of $30,000.
Normally, a party whose contract was breached cannot claim more than
the money they were initially owed—as laid out in the contract.

However, the doctrine of reliance damages does offer some exceptions in

very specific circumstances. Additional monetary damages may be
awarded if it can be proved that a reliance on the contract being fulfilled
triggered other connected expenses, such as lifeguard equipment being
bought based on the assumption laid out in the contract that a pool would
be built.2

In such cases, those harmed will be rewarded extra damages only if they
did their best to get themselves out of that unfavorable situation—such as,
in the example above, by selling the lifeguard equipment.2

Is Breaching a Contract a Crime?

Breaching a contract is generally not considered a criminal offense unless
it involves something like fraud. It is considered a matter between private
parties, rather than something that affects society as a whole.

What Are the Consequences of Breaching a Contract?

That depends. Generally speaking, if it can be proved that there was a
contract and that it was breached, then the party wronged should be left in
the same economic position that they would have been in had no breach
occurred.