Chapter 4: What Is a "Breach of Contract?"
Part 1: Material Breach: The Irreparably Broken Promise that Leads to Lawsuits
A breach of contract simply means that one of the agreeing parties failed to honor the contract. Easy enough, right?
In contract law, there are a couple types of these breaches. However, we will focus on the kind of breach that the courts care most about: a material breach of contract.
A material breach essentially obliterates the contract. It is an act that renders the agreement "irreparably broken" because it makes the very heart of the deal worthless. When material breaches occur, the other party can waltz right to court to try to collect damages.
Here are some situations that might signal a material breach of contract:
- A party has been deprived of the thing of value they bargained for. Say, for example, you're a network security consultant and you sign a contract with a client claiming that you will install antivirus software. If you install iTunes instead, they could sue you for a material breach.
- Throwing money at the problem won't necessarily right the loss. You're a software developer, and you've committed to create exclusive CRM software for your client. But for whatever reason, you realize you can't deliver your end of the deal before the project gets underway. Because it will take more than reasonable effort or expense to fulfill the terms of the contract, your client might have a case for a material breach.
- There's hardly a chance that the breaching party can fix things. Say you keep missing milestones clearly outlined in your client contract. The client may be able to make a case that you demonstrated that the problems aren't going to be corrected.
- The non-breaching party is ready to perform their side of the bargain. Here's the bright side of material breaches: the other party has to be ready and willing to perform their side of the contract in order for the breach to be legitimate in the eyes of the law. So say your client claims that you didn't create the software they asked for. However, you followed the specs outlined in the software development agreement. It's just that the client is holding out payment because they wanted you to throw in a few other touches. The client could lose their case because they aren't willing to uphold their side of the deal.
You can learn more about breaches of contract in Nolo.com's series, "Contract Disputes."
Keep in mind, though, just because you haven't breached a contract doesn't mean your clients won't accuse you of doing so. Remember, there's a significant knowledge gap between tech professionals and those who don't work in IT. Even if you clearly state in writing what you're going to do, it may not be enough to curb client expectations. When clients are dissatisfied, they're more likely to sue.
Next: Part 2: Dealing with Breach of Contract Lawsuits