Learn more about what a breach of contract is in business.
Ready to start your dream business? Check the availability of your new company name to get started.
The definition of a breach of contract is when someone doesn’t fulfill a promise they made in a legally enforceable contract. This could mean that one party doesn’t pay what they agreed. It could also mean that a party doesn’t deliver the promised goods or services.
It’s essential to know the definition of a contract to understand a breach of contract’s definition. A contract is a legally enforceable agreement between two or more parties. Parties can make promises to perform specific actions like delivering goods, paying money, or providing services. If one of the parties doesn’t do what they promise to do in the contract, that is a breach of contract.
A breach of contract’s disadvantages are many. If you consider breaching a contract, you can be liable for damages to compensate the other party for your failures. Sometimes the contract states the penalty you’ll owe if you do not do what you promised. If the other party takes you to court, a court can award damages to compensate the other party for their loss. This can often add up to more than just the cost of performing the contract.
Another issue is that sometimes a contract adds additional penalties for a breach of contract. The contract may require you to pay a late fee or an additional amount for every day or week that passes that you don’t do what you promised. The contract may also require a breaching party to pay for legal fees and costs.
Based on a breach of contract’s definition, there are rarely any benefits to a breach of contract. But there are occasional situations where delivering on the contract may cost more than breaching it. In this case, it may be more cost-efficient to breach and absorb the loss.
A breach of contract might benefit the non-breaching party, which has rights under the law. If the innocent party can prove a breach of contract, the breaching party will have to pay compensatory damages. These damages compensate an innocent party for their losses due to the breach.
Occasionally, the party who doesn’t breach the contract may benefit from another party’s breach if the first party could not fulfill the obligations of the contract. For example, let’s say that company A and company B enter into an agreement where company A promises to pay company B $5,000 for 1,000 shoes to be delivered on a certain date. However, company A has a terrible month and cannot afford to pay for the shoes anymore. Then, company B doesn’t deliver the shoes. Company A benefits from company B’s breach of contract in this instance.
No other term captures a breach of contract’s meaning exactly. Sometimes a breach of contract is referred to as a “breach of a promise” or a “breach of trust.” However, promises are not always legally binding or legally enforceable. A breach of contract’s definition is unique: it’s a breach of a legally enforceable promise.
Examples best explain what is a breach of contract. Here is one example:
Let’s say you are a writer. You and a magazine sign a contract where you agree to write three stories for the magazine by the end of the year. In exchange, the magazine agrees to pay you $1,000. If you do not write the articles by the end of the year, you’ll breach the contract. If you write the articles, but the magazine does not pay, the magazine breaches the contract.
Understanding all of the terms of a contract is important so that you don’t breach the contract and know your rights if the other party does breach it. However, writing a contract can be difficult. Luckily, we can help. We offer a Freelance Contract template for freelancers to craft their service contracts. Plus, we help explain different tools available to generate contracts for your small business.
If you want to set up a small business, we offer a Business Formation service. Suppose you’ve already set up your business. In that case, we also have a Worry-Free Compliance service to keep your business compliant with various regulations while you focus on keeping your business running.
Disclaimer: The content on this page is for informational purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.