How much do you know about breach of contract?

As a business owner, you are always willing and able to go the extra mile to ensure the continued success of your enterprise. While this, of course, means everything from making good hires and evaluating product performance to investing in advertising and streamlining processes, it also means doing your best to avoid legal problems.

Indeed, you likely do your very best to ensure 100 percent compliance with the terms of contracts and take care to execute contracts only with those parties you consider 100 percent reliable. While this is admirable, the unfortunate reality is sometimes you are simply unable to avoid legal disputes concerning breach of contract.

When does a breach of contract occur?

A breach of contract occurs whenever one party to the agreement fails to honor their obligations as set forth in the legally binding agreement. While every situation is different, a breach of contract could revolve around failures to perform to specifications, failures to perform on time or even failures to perform in any capacity.

For the purposes of reaching the appropriate legal remedy, the breach may be characterized as either immaterial or material.

What's an immaterial breach?

An immaterial breach is essentially one in which a party has substantially performed their obligations under the contract, but also deviated from them in some small or minor way.

For example, A and B enter into a contract in which B agrees to purchase 100 widgets for delivery that Friday. If A delivers the 100 widgets that Saturday instead of Friday, this would be considered an immaterial breach.

What's a material breach?

A material breach is essentially one in which a party has failed to substantially perform their obligations under the contract.

Consider an example in which A and B enter into a contract in which B agrees to purchase 100 widgets that absolutely must be delivered that Friday, indicating in writing that "time is of the essence." If A delivers the 100 widgets on Saturday instead of Friday, this could be considered a material breach.

We'll continue this discussion in a future post, examining some of the available remedies for breach of contract.

If you have questions about a contractual matter or other business law concerns, consider speaking with a skilled legal professional.