Types of Contract Breaches: The Fundamental Breach of Contract

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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. Modern contract compliance management software systems can help identify potential issues before they escalate into breaches. 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. Companies using SaaS contract management platforms can better monitor performance and prevent such breaches.

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. Using contract reminder software could have alerted Party 2 to their obligations before the breach occurred.

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. Contract management reporting tools can provide documentation to support your case.
• 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. An efficient contract workflow system makes it easier to manage cancellations and new vendor onboarding.
• 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. Strong contract management security ensures all parties can safely access and modify agreements.
• 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. OCR contract management technology can quickly digitize paper contracts for evidence in legal proceedings.

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. Contract renewal reminder software helps ensure agreements stay current and relevant.

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. Sales contract automation can standardize agreements and reduce errors that might lead to breaches.

Regular contract compliance audit procedures help identify potential problems early. The most efficient CLM for handling vendor agreements includes automated compliance monitoring features.

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.