Organizations of all sizes rely on various contracts to ensure smooth and efficient business operation. However, when one party breaks the terms of a contract, it can result in damaged relationships, loss of productivity and employee morale issues. Unfortunately, breaches of contract are common in the business world and, often, business owners will take legal action.
Business owners could experience numerous types of contract breaches, including:
- A minor breach occurs when one party only partially fulfills the terms of the contract. This can mean an incomplete shipment, a shipment of the right product from the wrong manufacturer or a contractor who completes the installation but uses the incorrect materials to fulfill the client order.
- A material breach occurs when one party ends the contract with a service that was significantly different from the original terms. For example, if an individual hires a contractor to design a website to sell artwork but the delivered website is geared more toward selling candles, one party could argue that the finished product is significantly different than what was ordered.
- An actual breach occurs when one party refuses to fulfill their end of the contract. This usually either occurs if the individual misses the due date specified in the terms of the contract or simply fails to complete their duties.
- An anticipatory breach occurs when one party realizes the other party will fail to perform his or her obligations under the terms of the contract. When this happens, the non-breaching party could elect to terminate the contract and then sue for damages.
Depending on the type of contract and the scope of the organization, a breach can have a significant impact. When drafting the contract, both parties will often work to ensure their interests are protected, however, it is not uncommon for one party to fail to live up to their obligations. When a breach of contract becomes a reality, business owners must act quickly to protect their organization.