What is a Breach of Contract?
Technically speaking, a breach of contract is a legal cause of action and a type of civil wrong. At the heart of it, one or more parties does not honor a binding agreement they’ve already committed to.
In other words, the “breach” is the breaking of the terms and conditions that have been set by the “contract”. So how do you protect a contract to avoid a costly breach that could impact your professional and financial well-being?
Two Kinds of Breach
Typically, a breach of contract will fall into one of two categories. The category can help determine if the solutions are more simple and less confrontational. In fact, in some cases a slight deviation from the original agreement may not be enough to yield damages. These two categories include:
Not every deviation from the contract terms is worth conflict and legal intervention.
While it still constitutes a breach of contract, a minor or non-material breach might not have any significant impact on the construction project as a whole. Granted, people aren’t always pleased by a minor breach, but they are typically not enough to ruin a project.
On the other side of the coin, sometimes the breach of contract can actually be a very big deal. With a material breach, one or even both parties have deviated far from the initial contract.
Of course, most would prefer to avoid having to take legal action. However, often a material breach will lead to a lawsuit. In most cases a court will determine whether a breach is truly material. Additionally, a contract may include specific language that describes a material breach.
Part of taking the right steps in the event of a breach of contract is to understand how those actions impact you in the long run.
Four Common Reasons for a Breach of Contract
Agreements are part of the foundation of the construction industry. They help to solidify and regulate the relationships between parties. With such a long list of people involved in each project, it is vital to protect those relationships, but also protect your own best interest. There are a few common ways that a breach of contract happens, such as:
1. Poorly designed contracts or construction defects
Quite often, conflict in cases involving construction projects, property owners and contractors revolve around issues with a poorly designed contract. Some lack clarity, detail and provisions that effectively offer a blueprint for the professional relationship.
2. Failure to fulfill obligations
When one part fails to meet their end of the deal, that is a breach of contract. Furthermore, in construction projects many elements depend on other elements being completed. So when one party fails, it can cause other parties to fail.
This failure can even be in part, meaning they have met some but not all requirements.
3. Performance quality disputes
While one may manage to complete their part of the construction project, it is still very common to have disputes over workmanship.
However, you may consider this a minor deviation from the contract. Therefore, it won’t necessarily give rise to a material breach. Often, it is in the best interests of both parties to find a resolution.
4. Scheduling Conflicts
To expand on the previous item, one way a contract is breached is when one party fails to complete their assignment within a certain time frame. Deadlines can be extremely important for many projects, and so to miss the deadline, or behave in a manner that shows an intention not to meet the deadline, can be counted as a breach of contract.
Written Contact vs. Oral Contract
When it comes to business, you have to ask yourself if you are ready to just take someone’s word for it. Because with an oral contract, that is essentially what you are doing.
To be clear, construction contracts do not always have to be in writing. However, all states in the U.S. have what is generally known as a statute of frauds. This is a law that requires certain types of contracts to be in writing in order to be a legally enforceable agreement. Sometimes, a construction contract fits the description.
In the state of Florida, the following types of contracts involving construction projects must be in writing:
- Credit agreements (i.e. construction loan financing)
- Contracts that cannot be performed within one year
- Contracts for the sale of goods, such as construction materials, over $500
- Contracts for the sale of real property
While oral contracts can be legally binding, they are not nearly as strong as those put in black and white. There are at least 3 things to think about with written vs oral contracts and how easy it is to experience a breach of contract.
1. Enforcing Timelines
One element of the contract that can cause problems later on is the lack of a definitive timeline. Most people don’t know that a written agreement is actually enforceable in court for a longer period of time than an oral agreement. In fact, depending on the state laws that apply, that time period can be even shorter. In some states, an oral contract will only last up to three years. Meanwhile, a written contract can be enforced up to six years. This will vary from state to state. For instance, in the state of Florida an oral contract will be enforceable for up to 4 years while a written contract is up to 5 years. Be sure to check the specifics of your state or contact a professional.
Either way, if you have an oral agreement and the other party has a breach of contract, it will be harder to enforce the longer you wait.
2. Clear Expectations
One great thing about a written contract is that not very much is open to interpretation. With a conversation, things can be misunderstood or mischaracterized later. Without a tangible frame of reference, it leaves more room for a breach of contract to occur.
When creating a written contract, there should also be review and assistance from legal counsel. This allows both parties the opportunity to make sure their conditions and expectations are legally binding.
3. Changes in Contracts
A written contract also clearly establishes contingencies for situations that may arise throughout the course of the project. Sometimes things change, and it is easier to navigate those changes without experiencing a breach of contract if there is a set plan in place.
Meanwhile, written contracts for construction work frequently include clauses requiring that any modification of the original written agreement must also be in writing. Furthermore, if an oral agreement is made, but then a written contract is made that does not include the same details of the oral agreement, then the verbal agreement is not enforceable.
The Importance of a Signed Contract
Having a clearly written, thorough and signed contract is one of the best possible ways to protect yourself from a breach of contract.
Try to think of a signed contract as a very complicated receipt. It lays out the parameters of a construction project in great detail, and provides you with all the information you need to know what you are responsible for, what the stipulations for your employment are, how you are getting paid and when to expect your compensation.
Having a signed contract is vital to not only protecting yourself, but also protecting the relationship and the project as a whole. For one thing, a signature on a document is far easier to enforce. Once a contract is signed, neither party can reject the facts established in the document after a breach of contract.
In the event that there is a breach, having a signed contract can help you avoid expensive litigation. After all, a court battle can be costly and time consuming for both parties. Therefore, having a written agreement that has been worked on with legal counsel can make the process a lot simpler.
Contact GreenLight Maximum Recovery today for a FREE contract review to be sure you’re doing everything right to secure your debts or if you’re dealing with issues stemming from a breach of contract.