Any given business, no matter how big or small, is guided by its underlying contracts with internal and external stakeholders. Therefore, it’s not unexpected that one of the most common disputes in the business world is breach of contract. There are different levels of contract breaches, though; some breaches are minor, while others can result in the invalidation of the entire contract. This blog will explore some of the main classifications of contract breaches that entrepreneurs deal with, along with the possible consequences.
Material vs. Immaterial Breach
Generally, contract breaches fall in one of two categories: material or immaterial. Material breaches are actions by the breaching party that strike at the heart of the contract in question. As a result of a material breach, the non-breaching party receives significantly less of a benefit than it would have received if the contract’s terms were satisfied. Put another way, a material breach of contract renders the agreement moot.
Conversely, an immaterial breach of contract does not substantially impair the underlying contract. An immaterial breach is often simply called a “minor breach of contract.” When a party commits an immaterial breach of contract, they ultimately deliver on the fundamental aspects of their side of the agreement.
To illustrate, let’s consider a bakery that has a contract with a wholesaler to receive bread dough. Typically, the bakery receives a shipment every other Monday morning. In one instance, the wholesaler calls the bakery and informs the manager that a delivery truck has broken down and that the delivery will arrive Tuesday morning. Ultimately, the wholesaler delivers the agreed-upon amount of raw dough to the bakery. Luckily, the baker had enough dough on hand to fulfill all its orders. Though the delivery was not on time, the breach was minor because the wholesaler’s end of the bargain was ultimately delivered and the bakery did not suffer financially due to the delay.
Conversely, let’s say the wholesaler did not arrive as scheduled on Tuesday and did not answer calls from the bakery inquiring about the delay. Finally, the wholesaler calls on Friday afternoon and lets the baker know the delivery is on the way. When the truck driver arrives, the only cargo in the vehicle is frozen brisket, meant for a BBQ restaurant across town. In this case, the wholesaler did not perform according to the contract and would likely be liable for damages.
How Are Damages Determined?
The most common type of damages awarded in a breach of contract case is monetary compensation. If we go back to the example of the bakery and the wholesaler, the bakery would likely recoup any costs already paid for the raw dough and, likely, profits the bakery missed out on due to the non-performance. It is of course, possible for the two parties to rectify the situation without litigation. Also, it is usually quite difficult to recover damages in an immaterial breach of contract case—unless the breaching party commits a material breach after the original claim was filed.
The Law Office of Tania Sayegh Bartolini, P.A. has handled countless breach of contract claims on behalf of businesses. We stand ready to fight for you and help you achieve justice in any instance. To set up an appointment, call our team today at 954-368-4050.