From Minor to Material Breach: Understanding Contract Breaches and Remedies

Contracts ensure that businesses run smoothly, but breaches do occur. Here’s a look at the types of breaches, remedies, and key takeaways.

1. Minor Breach: Occurs when a party partially fulfills a contract without affecting the contract's overall purpose. For example: A delay in shipment may fall under a minor breach. Although performance was incomplete, it didn’t void the contract’s main objective, allowing the injured party to claim damages.
2. Material Breach: A significant failure that impacts the core of the contract. When a material breach occurs, the aggrieved party may claim damages and even terminate the agreement.For Example: In one of cases, a contractor was hired to construct a building for the State of Rajasthan. The construction work was not done according to the specifications outlined in the contract, leading to defects. The Rajasthan High Court ruled that the contractor's failure to meet the agreed specifications amounted to a material breach. The ramification of a material breach is that it often allows the non-breaching party to halt its own performance, claim damages, or even exit the contract entirely if the core purpose is defeated.
3. Fundamental Breach: This is when a breach is so severe that it goes to the root of the contract, entitling the innocent party to rescind the contract and seek compensation. For Example: In Indian Oil Corp. v. Amritsar Gas Service, a distributor’s non-performance breached the entire purpose of the contract, justifying rescission and damages.
4. Anticipatory Breach: When a party communicates its unwillingness or inability to fulfill future obligations, the non-breaching party can take action immediately. For Example: In one of the cases, a supplier entered into a contract with the State of Gujarat to supply plastic materials for government projects. Prior to the delivery date, the supplier informed the government that they would be unable to fulfill the deliveries due to financial difficulties. This communication constituted an anticipatory breach of contract.

Remedies for Breaches:

• Damages: Monetary compensation awarded for loss or injury resulting from a breach of contract.
• Injunction: A court order directing a party to do or refrain from doing a specific act to prevent harm or preserve rights.
• Specific Performance: An equitable remedy that requires a party to fulfill their contractual obligations as specified in the contract, rather than simply providing monetary compensation.

It is important for Procurement Professionals to understand the type of breach to seek an appropriate remedy for the contract breach. For Example, termination may not be a possible remedy for a minor breach and such actions may not be upheld in the courts of law.