Breach of Contract: Types, Consequences and How to Avoid

All businesses, no matter how large or small, run on contracts. This is true whether the business is a small mom-and-pop store in the country or a mega-brick-and-mortar business like Walmart. When a contract is breached, it may create a domino effect that rocks the foundation of the business.

Individuals also rely on contracts: contracts for the delivery of purchases, contracts for health insurance, for car insurance, contracts for leasing or purchasing homes, contracts for service providers, and more. Thousands of Floridians are currently analyzing their property insurance contract to determine if they have coverage for the destruction inflicted by Hurricane Ian.

What is a Contract?

A contract is a legal agreement between two or more parties that creates legal obligations and rights. Business contracts are generally in writing but may be oral if it is possible for the terms of the contract to be completed in one year or less. The Florida Statute of Frauds provides guidance on what types of contracts must be in writing to be enforceable. This law applies to businesses and individuals.

On occasion, a contract is breached. Some breaches are minor and easily resolved between the parties. Other breaches may be so serious that only court intervention can resolve the dispute.

What is a Breach of Contract?

A breach of contract occurs when one party to the contract fails to fulfill the obligations it agreed to when the contract was formed. The most common breach of contract occurs when one party misses an established deadline such as:

• Failure to pay rent by the agreed-upon due date.
• Failure to pay for goods or services according to the terms of the contract.
• Goods are not delivered to an individual or business at the established date for delivery.
• A construction project is not completed by the deadline or products used that were not part of the agreement.

Other types of breaches may be the delivery of goods different from what was ordered or complete failure to deliver any goods.

Types of Breach of Contract

A breach of contract may be minor and can be remedied by a brief negotiation between the parties. Other breaches can be so serious that the functioning of an entire business is in jeopardy.

• Anticipatory Breach. One party informs the other party or parties that they will not be performing their contractual obligations.
• Actual Breach. One party completely refuses to fully perform its obligations according to the terms of the contract they previously agreed to abide by.
• Minor Breach. A breach occurs, but it does not materially affect the party who was harmed.
• Material Breach. The breach materially affects the party not in breach. For example, the wrong goods were delivered. One example is a vendor agreed to deliver 200 bound manuals for an auto industry conference. Instead, the vendor delivered 200 gardening brochures.

Consequences for Breach of Contract

Florida law concerning contracts and breach of contract is somewhat complex. If the parties are unable to negotiate a new contract or come to some type of settlement between them, the non-breaching party may file a lawsuit against the party in breach. Each party will present evidence to the court, and the court will order one of the following remedies for breach of contract.

• Compensatory damages. These are just what they sound like: an amount of money to compensate the plaintiff for the loss and to put both parties in the position they were in prior to entering into the contract. Punitive damages, to punish the party in breach, are only ordered in rare cases where the party in breach has engaged in egregious conduct and that conduct is responsible for the breach.
• Liquidated damages. This is when the contract itself specifies the amount of damages an injured party will receive if the contract is breached.
• Revision of the contract. This means both parties are relieved of their contractual obligations and a new contract is formed.
• Restitution. The defendant (the one who breached the contract) must pay the plaintiff back for any gain the defendant had under the contract.
• Specific performance. The party in breach must perform their duties according to the terms of the contract.

Elements of a Breach of Contract Lawsuit

A plaintiff who files a lawsuit claiming the defendant breached a contract must prove:

• A valid contract existed. The simplest way to prove that a contract exists is to have a written document that both parties signed. It’s also possible to enforce an oral contract, though certain types of agreements still would require a written contract to carry any legal weight. Contracts that involve the purchase of goods for more than 500 dollars, the selling or transferring of real estate, and long-term agreements signed more than one year after signing the contract.
• The contract was breached. One party failed to perform the obligations according to the terms of the agreement.
• The breach of the contract caused the plaintiff to suffer damages. Different types of damages are available depending on the terms of the contract, the seriousness of the breach, and how to best make up for the plaintiff’s loss.

How to Avoid Breaching a Contract

It is impossible to completely avoid breaching a contract. Things happen that are beyond your control. A few suggestions that might help include:

• Draft the best possible agreement. Think of all the possible contingencies that could occur and include them in the contract and how the contract will be performed if any of those things happen.
• Monitor the contract performance. Note milestones and be sure they are met. Set up an automatic notification reminder system.
• Keep your active contracts where they are easily accessible. This allows you to access the contracts for review to be sure the subject of the contract is on schedule for meeting the contractual obligations.

Remedies Available for Breach of Contract

Florida law concerning contracts and breach of contract is somewhat complex. In general, remedies for breach of contract remedies depend on the nature of the breach and the needs of the plaintiff. An overview of remedies includes:

• Damages. These may be compensatory which is just what it sounds like: an amount of money to compensate the plaintiff for the loss and to put both parties in the position they were in prior to entering into the contract.
• Liquidated damages. This is when the contract itself specifies the amount of damages an injured party will receive if the contract is breached.
• Rescission of the contract. This means both parties are relieved of their contract obligations.
• Restitution. The defendant (the one who breached the contract) must pay the plaintiff back for any gain the defendant had under the contract.
• Specific performance. The party in breach must perform their duties according to the terms of the contract.

Breach of Contract Lawyers at The Ferraro Law Firm Can Help

If you suffered financial loss due to a breach of contract, our business attorneys at The Ferraro Law Firm may be able to help you pursue compensation for your losses. In Florida, the breach of contract statute of limitations is five years. This means you must file your lawsuit within five years of the date the breach first occurred.

Contact us to schedule a free consultation and learn more about how we may be able to help you. You may also call (888) 554-2030.

Editor’s Note: This article was originally published in October, 2022 and has been updated with fresh content