Types of Contract Breaches: The Fundamental Breach of Contract
Sometimes a fundamental breach of contract happens, even when everyone tries their best to fulfill the agreement. Whether someone deliberately breaks the agreement or circumstances make it impossible to meet the terms, you need to know how to handle a contract breach. Let’s explore what happens when a fundamental breach occurs and what you can do about it.
What is a fundamental breach of contract?
A fundamental breach of contract happens when one party fails to fulfill an essential part of the contract, making it impossible for others to complete their responsibilities. This type of breach is so serious that it gives the wronged party the right to cancel the entire contract.
Here’s a simple example of a fundamental breach of contract:
- Party 1 orders a product
- Party 2 agrees to make it
- Party 3 promises to deliver it
- But Party 2 never makes the product
In this case, Party 2’s failure creates a chain reaction: Party 3 can’t deliver anything, and Party 1 can’t receive or pay for the product. Party 3 loses income and might sue for damages, while Party 1 can cancel the contract and find a new vendor.
What are your legal options?
When facing a fundamental breach of contract, you have four main paths forward:
- Demand specific performance: Ask the court to order everyone to complete the original contract terms. While this can be challenging to enforce, it helps you get exactly what you initially contracted for.
- Choose rescission: Cancel the contract and get your money back. This is the simplest solution, though you’ll need to find another way to get your goods or services.
- Try reformation: Work together to rewrite the contract with more flexible terms. While this takes longer, it helps preserve business relationships and can lead to better outcomes for everyone involved.
- Sue for damages: If other options fail, you can take legal action to recover your losses. This works best when you don’t need to maintain a relationship with the other party.
How to protect yourself from a fundamental breach of contract
Smart companies take steps to prevent contract problems before they happen. Here’s how:
Include exemption clauses in your contracts to limit liability if something goes wrong. But remember – these clauses must be legally sound to hold up in court. Work with a lawyer to build a reliable clause library for your contracts.
Consider using contract lifecycle management software to streamline everything from negotiations to renewals. This technology makes contracts clearer and easier to manage, which leads to happier business relationships.
While you can’t prevent every problem, having the right tools and strategies in place helps you handle any issues that do arise quickly and effectively.
