Insights

What Is a Breach of Contract?

By:

Peter M. King

October 9, 2022
4:40 pm

A breach of contract is simply the violation of some contractual or agreed obligation. A contract may be breached if an entity refuses to accept or acknowledge an agreed promise, fails to perform a promise, or is found to be interfering with another party’s performance. A breach of contract lawyer in Chicago can look over your agreement and tell you where you stand if you believe it was broken.

So, simply put, when there is a failure to hold up a part of an agreement, there is room for a claim to be made that there has been a breach of contract. A breach of contract is not necessarily the failure to complete a contract in its entirety, but it also includes contracts that were completed late or not according to the agreement.

What Makes a Contract Valid

Contracts are legally binding agreements that hold all parties to their promises. Before you can bring a breach of contract claim, a valid contract must exist. The general elements of a valid contract are the following:

Offer: One party must make an offer to another party.
Acceptance: The other party must accept that offer.
Consideration: There must be an exchange of value (not necessarily money) between the parties.
Mutual Intent: The parties must have intended to form a binding contract.

The parties to the contract must have also had the legal capacity to enter into the contract, and the contract must have been for a legal purpose. If you meet these requirements, then you have a valid contract.

Common Types of Breaches

Businesses can be accused of a breach of contract for many reasons. And there are different types of breaches of contract. The different types of breaches are the following:

Minor Breach

A minor breach is also called a non-material breach. It occurs when one party commits a minor breach of the contract. It generally is not a major aspect of the contract.

A court usually will still enforce the contract between the parties involved as most of the contract can still be completed, and the purpose of the contract is not defeated.

For example, suppose Clothing Manufacturer A contracts with Store Buyer B to sell 1,000 winter coats by October 15th for the winter season. Clothing Manufacturer A is late on delivery. All 1,000 coats were delivered on November 4th. This might be a minor breach.

Clothing Manufacturer A breached the contract because they delivered the 1,000 coats 20 days late. However, Store Buyer B can still sell the coats for the winter season. Therefore, the contract is still valid.

Material Breach

A material breach of contract is when one party does not complete a large or important portion of the contract. This breach is so substantial as to render the contract pointless. This type of breach usually causes the injured party significant financial setbacks.

For example, suppose Sporting Goods Manufacturer contracts with the local Ski Resort to sell 200 sets of skis by November 15th for the winter season. Sporting Goods Manufacturer delivers 200 snowboards instead. There is no snowboarding at the resort. This is a material breach.

Sporting Goods Manufacturer breached the contract because they delivered 200 snowboards instead of 200 sets of skis. The Ski Resort cannot sell snowboards to skiers. Therefore, the contract is useless.

Actual Breach

An actual breach of contract is when one party fails to fulfill its duties and obligations agreed to in the contract. The breach actually happened.

For example, suppose Music Instrument Seller promised to deliver a piano to Orchestra A on the morning of June 2 for its performance that evening. Music Instrument Seller delivered the piano on the morning of June 3. This late delivery is an actual breach.

The Music Instrument Seller was supposed to deliver the piano on the morning of June 2, and it did not. Because of this breach, Orchestra A can bring legal action for damages.

Anticipatory Breach

Unlike an actual breach, an anticipatory breach of contract occurs when one party announces or gives the impression that it will not fulfill its obligations under the contract.

For example, suppose Building Company A contracts to build ten buildings for Private Company B by 2025. However, the Building Company is short-staffed and states that it is devoting its resources to its other projects and will probably be unable to complete Private Company’s B’s ten buildings by the contract deadline.

Private Company B can sue for anticipatory breach. It does not have to wait until 2025 to sue because the ten buildings were not completed. Building Company A has already indicated that it would not fulfill its obligations.

How to Prove a Breach of Contract

If that valid contract is breached, you must prove the following to succeed on a breach of contract claim.

Breach: The other party failed to honor one or more of the contract’s terms.
Performance: The injured party must have fulfilled its contractual obligations.
Harm: The injured party to the contract must have suffered monetary damages caused by the other party’s breach.

If you can prove these elements, you may have a valid claim for a breach of contract under Illinois law.

Proof usually comes from documents. The signed contract, emails and messages about the work, invoices, payment records, and delivery records can show what was promised, what was done, and what it cost. Keep these records organized, and do not delete anything that relates to the deal.

A lawyer specializing in contract law can help you determine the validity of your breach of contract claim and help you decide on the best legal course of action.

Legal Consequences and Remedies

If that binding promise is breached, there are consequences. If you are in breach of contract and cannot reach an agreement or compromise with the other party, you will most likely face a lawsuit brought by the injured party. This can lead to a costly legal battle and financial repercussions.

When a court finds a breach, the compensation it orders usually falls into one of the different types of damages below:

General or actual damages: These damages aim to put the injured party in the same position they would have been in if the contractual obligations had been fulfilled.
Consequential or special damages: These damages provide the injured party with the compensation they would have received had the breach not occurred. These damages must have been foreseeable. They can be difficult to prove.

Other damages include the following:

Specific performance: Sometimes, the breaching party may be ordered to actually comply with its contractual obligations.
Recission: This legal remedy allows a party to terminate the contract and puts both parties in the same position they were in before they entered into the contract.
Punitive damages: These damages are very rarely awarded in contract law cases.

Which remedy fits depends on the contract, the breach, and the losses the injured party can show. Some contracts also set the amount of damages in advance, and our article on liquidated damages clauses in Illinois business contracts looks at those terms.

More Examples of How Breaches Happen

Breaches show up in ordinary business dealings. A supplier ships goods that do not match the order. A contractor starts a job and then stops work. A customer receives what it ordered and then does not pay. Contracts for AI tools are a newer source of disputes, as our post on AI contract disputes explains.

For example, if you performed the services you promised but the other side has stopped responding to requests for payment, it is likely that you can begin a suit for breach of contract.

Not every missed expectation is a breach. For example, even if the other party usually delivers the widgets by a certain date, the agreement may allow them more time.

Real disputes often turn on the exact words of the contract and on what each side can prove. The accused party will often answer with defenses to a breach of contract claim of its own. Some conflicts also involve wrongs outside the contract, such as fraud or interference, which our article on business torts and why they matter describes.

What to Do After a Breach

As step one, you should review the language in the contract to ensure there is a breach. Look at what it says about notice and about how disputes are to be handled, and keep a record of what you send and receive.

No matter what side of a breach of contract you are on, sometimes working to fix the situation without resorting to a legal battle may be worth it. Here are a few steps you might take:

Discussions

You entered a contract with the other party because you trusted them enough to do business with you. You may be able to work out a compromise with them. Not everything has to go to court. Most disputes are settled outside of the courtroom.

Calculation

You should calculate your damages. While you may be the injured party in the breach, you should compare your potential recovery against your costs of litigation.

Alternative Dispute Resolution

Another alternative to legal action is mediation or arbitration. These options have risks, but can be cheaper than a court legal action and can be a quicker alternative to the courts.

Legal Action

If none of the other methods work, you need to retain the services of a competent Illinois contract lawyer so they can analyze your lawsuit for breach of contract claim to determine its viability and, if so, the steps to follow.

How to Prevent a Breach

Many disputes can be avoided with careful drafting and steady follow-through. A contract that states what each side will do, by when, and for what price leaves less room for argument. It also helps to write down how changes will be made and how notice will be given.

As the work goes on, track deadlines and deliveries, and keep a file of the messages and records that show what each side did. If something starts to slip, raise it early and in writing. An early conversation can sometimes solve a problem before it becomes a dispute.

For an important contract, have a lawyer review the terms before you sign, especially when the deal is large or the terms are unusual.