Business contracts form the backbone of any organization’s daily operations. From employment contracts to vendor agreements, owners and supervisors alike rely on various contracts to ensure the business runs as intended. Unfortunately, when the terms of a contract are violated, however, operations can grind to a halt.
A minor breach occurs when one party fails to perform a small detail as described in the contract. In these situations, the contract hasn’t been voided in its entirety and could be salvaged through negotiation. The minor breach can be traced back to technical errors in the contract, improper wording or poorly described expectations. Likely, the two parties can work through the dispute in mediation, arbitration or another form of negotiation.
A material breach occurs when the violation is so substantial that it essentially cancels the contract. The breach makes the successful conclusion of the contract impossible for all parties. In these situations, the nonbreaching party has the right to seek remedies.
There are several elements that can make it easier to differentiate between the two:
- What benefit was received by the nonbreaching party?
- Can the nonbreaching party be compensated for damages?
- How much of the actual contracted performance was completed?
- Was there negligent behavior on the part of the breaching party?
- What is the likelihood that the breaching party will complete the rest of the terms of the contract?
In many cases, the nonbreaching party has numerous remedies available to them. From financial compensation to an agreement with more favorable terms, it is not uncommon that the parties can settle this dispute through the legal process of either negotiation or traditional courtroom litigation.