Do you own or manage a business? Contracts are probably part and parcel of your day to day operations. Whether it’s a contract with a supplier for stocks or an employment contract with one of your staff, these legal documents are never too far from the surface.
In an ideal world, all parties to a contract would follow its terms to the letter. However, the reality of things is that disputes arising out of contracts are common and inevitable. Individuals and companies may breach the contracts they’re involved in for all manner of reasons, ranging from financial difficulties to unforeseen circumstances.
Yet, the consequences of each breach can vary significantly and for the uninitiated, this can present a confusing challenge when seeking recourse.
In this guide, we’ll zoom in on what exactly a material breach of contract is and provide you with an overview of your options in a contractual dispute.
What is a Breach of Contract?
Broadly speaking, a breach of contract refers to any situation in which a party fails to fulfil their obligations as set out in a legally binding agreement.
What Are the 4 Types of Breach of Contract?
There are 4 main types of breach of contract. These include:
- Minor Breach: As its name suggests, a minor breach is one where a small portion of the contract has been violated or deviated from. This violation is often insignificant enough that it does not affect the performance of the remainder of the contract.
- Material Breach: Material breaches are breaches that are serious enough that they go toward the heart of the agreement. This means that they are so significant that the contract is deemed to have been completely broken.
- Anticipatory Breach: Anticipatory breaches are a tricky type of breach of contract that involves one party knowing that the other party will not fulfil the terms of the contract. This enables the non-breaching party to take action immediately instead of having to wait for the other party to actually breach the contract.
- Actual Breach: An actual breach of contract happens when a party outright fails to perform their obligations under the contract. This can include both situations where the party does not perform its obligations at all and where the party performs its obligations but does so incorrectly.
What is a Material Breach of Contract?
As mentioned earlier, material breaches are serious failures to perform a contractual obligation such that it defeats the entire purpose of the contract. Many people often confuse material breaches with actual breaches, but it is important to understand the distinction between the two.
Actual breaches often refer to the timing of the failure and can encompass both minor and material breaches.
In contrast, material breaches refer to the severity of the failure. For example, if a supplier delivers goods a day later, it would constitute an actual breach: the contractual due date has passed. However, it may not be a material breach if the delay has little to no impact on the business. On the other hand, if the delay causes significant disruption, such as halting a production line, then the breach may be a material breach.
What Can You Do if You Face a Breach of Contract?
If a contract that you are party to has been breached by the other party, there are several courses of action that you can take. The appropriate response will depend on the nature and severity of the breach, as well as the terms of the contract and your desired outcome.
Informal Negotiations
In some cases where the breach is minor or due to a misunderstanding, it may be possible to address it simply through an informal discussion or negotiation.
This can also help you to preserve any ongoing business relationships and arrive at a practical solution for all parties involved.
Alternative Dispute Resolution
Many contracts also contain alternative dispute resolution clauses that require parties to refer any disputes to mediation or arbitration before commencing litigation.
These alternative dispute resolution processes can be faster and less costly than litigation — and it follows then that you should consider them, even if they are not required by the terms of the contract.
Litigation
When all else fails, legal action in the form of a lawsuit may be necessary. Litigation proceedings can enable you to enforce your rights arising out of the breach.
While litigation proceedings may take some time, they can often be the most effective if you have a strong case. The prospect of litigation in some cases may also increase a breaching party’s willingness to negotiate and agree to a favorable settlement for you.
How Much Can You Sue for a Breach of Contract?
The damages you can recover in a lawsuit for a breach of contract will vary depending on several factors, including the nature of the breach and the extent of the losses you’ve suffered as a result of the breach.
Nonetheless, it’s important to remember that courts generally apply the principle of compensatory damages. This means that the remedies you receive are intended to place you in a position that you would have been in had the contract not been breached.
Should You Get a Lawyer for a Breach of Contract?
Ultimately, whether you engage a lawyer depends on the nature and seriousness of the breach. If the breach is minor and can be resolved through a simple negotiation or conversation, then it may not be necessary to engage a lawyer. However, if the breach is sufficiently serious and you intend to take or are considering taking legal action, then you should get a lawyer.
Looking for mediation help? If you’re considering a professional mediation service, our lawyer Troy B. Krich is a certified mediator. Reach out to us here!
A lawyer with experience dealing with breaches of contract would be in a good position to advise you on the specific issues relating to your dispute. They would also be able to analyze the facts and work with you to set a realistic expectation of what remedies you might be able to obtain.
Gallagher Krich, APC: Lawyers for Breach of Contract in California
Gallagher Krich, APC are experienced San Diego attorneys specializing in commercial disputes, including breaches of contract. If you are looking to get a professional legal opinion on your situation, our team of experts can help you assess the facts and advise you on the best course of action.
Contact us today or call us at (858) 926-5797 to schedule a free consultation and get trusted legal advice tailored to your business needs.
Thomas F. Gallagher, Esq. is a founding partner of Gallagher Krich, APC, a San Diego law firm focused on business law, civil litigation, and contract disputes. With over 30 years of legal experience, Tom provides strategic counsel to business owners, entrepreneurs, and professionals navigating complex legal challenges across California.
His practice includes drafting and negotiating commercial contracts, resolving business disputes, and advising clients on corporate governance, regulatory compliance, and risk management. Read more »
