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Breach of contract

Breach of contract is a term you need to know. Bankrate explains.

What is breach of contract?

In contract law, breach of contract, also called breach of agreement, refers to the violation of any term or condition of a binding agreement. It generally occurs when at least one party doesn’t fulfill his or her commitments under the contract. This breach could be anything from an incomplete job or a missing payment to more serious violations, such as not providing a bond when required or substituting substandard goods.

Deeper definition

Breach of contract is one of the most common reasons contract disputes are upheld by a court for resolution. The court generally upholds a breach of contract when all of the following requirements are met:

  • The contract is valid. A valid contract must contain six essential elements for the court to hear it: offer, acceptance, mutual consent, consideration, competence, and legal purpose. If one or more of these elements are missing, the contract will be considered invalid.
  • The defendant must be shown to have breached the contract.
  • The plaintiff satisfies all the requirements in the contract.
  • The defendant must have been informed of the breach. Written notification is better than verbal notification.

Breach of contract can be a material breach, a partial breach, or an anticipatory breach. A material breach of contract refers to a party’s failure to execute a major part of the contract, preventing it from being completed. A partial breach of contract, also referred to as an immaterial or minor breach, occurs when a party fails to complete a less serious part of the contract. An anticipatory breach occurs when a party refuses to perform under the contract as promised.

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Breach of contract example

A homeowner contracts with an electrician to install high-quality wires for added safety in his home, but instead of using high-quality wires, the electrician uses substandard wires that damage the walls. This situation would be considered a material breach because the goal of safety in the contract was ignored. If the contract required the electrician to install black wires but he used red wires instead, this would be considered a non-material breach of contract.

A trucking company is contracted to deliver goods to a municipal transportation department during snowstorms for a period of two years but fails to deliver for the first two storms. An anticipatory breach has occurred, and the department may be absolved of the commitment to take future services and may be able to file a lawsuit for the damages caused by the missed deliveries.

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