Contracts are an important function and a fundamental tool in doing business. Companies rely on their partners to honor the terms of the contract. However, when a party fails to abide by the contract, a breach of contract can occur, and things can get messy very quickly. Companies left holding the bag could end up incurring significant financial losses.

Interestingly, disputes can occur even before a contract is drafted and signed. Parties entering into an agreement want to make sure that their interests are protected as the document is being written. As with contracts of any kind, every aspect of the agreement should be carefully reviewed before the document is signed. All parties should have a thorough and mutual understanding of the contract’s terms and definitions of those terms.  

Of course, that is not always the case. Most contract disputes take place after the contract is signed. Examples of contract disputes include: collection disputes where one party believes they are owed money for a service or product per terms of the contract; disagreements over terms in the contract; legal issues, like when language in the contract does not comport with state or federal law; and breaches of contract.

A breach of contract occurs when one party fails to fulfill its obligations under the contract. There are different kinds of breaches of contract, such as:

  • Material breach: Also referred to as a “total breach,” this takes place when a contract is completely and irreparably broken. The breach is so profound that the rest of the contract is rendered basically useless.
  • Fundamental breach: When the other party doesn’t follow through on with the primary part of the contract.
  • Anticipatory breach: When a party indicates it is not going to fulfill its obligations under the contract.
  • Minor breach: Also alluded to as a “partial breach,” this kind of breach occurs when one party makes errors during the process. Typically, this kind of breach doesn’t significantly impact the purpose of the contract, and both parties are required to abide by their obligations under the contract.

If you believe your contractual partner has breached the contract, keep in mind that in taking that partner to court, you’ll need to prove three things: 1) there was a contract between you and the other party; 2) that your partner breached the contract; and 3) you or your business suffered financial losses because of the partner’s breach of contract.