Contracts are essential legal documents that establish business relationships. Many contracts are used to arrange for goods and services, establish a party’s rights and protect a business’s interests. However, if a party does not follow the terms of a contract, it can lead to a contract breach.
Contract breaches can lead to monetary loss, reputational damages and liability issues. Before resolving a contract breach, it is essential to identify the type of breach that has occurred. There are four common types of contract breaches. Here is what you should know:
An actual breach
If a party fails or refuses to fulfil an essential part of a contract, it may be referred to as an actual breach. Some of the most common types of actual breaches happen when a critical deadline is missed or the wrong product is delivered. When an actual breach happens, a party may not be able to resolve the issue by fulfilling their responsibilities because the key term was essential to the contract.
An anticipatory breach
A party may foresee that a term in a contract will not be fulfilled. As a result, they may notify the other contracted party about the potential contract breach. An anticipatory breach allows a party to seek damages for a contractual obligation that was not fulfilled.
A minor breach
A minor breach refers to an issue fulfilling the full terms of a contract that superficially impacts the overall outcome of a contractual obligation. For example, a shipment of goods being delayed by a day could be seen as a minor breach.
A material breach
When a contract breach leads to major issues because the wrong product was delivered or a service was incorrectly fulfilled, it is typically called a material breach. Material breaches can lead to serious damages if a party refuses to fulfil their contractual obligations.
Naturally, there is overlap between these types. Actual and anticipatory breaches, for example, could be either minor or material. Professional legal guidance can help businesses identify contract breaches and explore their resolution options.