3-22-2016 | by Benjamin Fleshman
It is an unfortunate truth that, despite every effort to the contrary, some contracts go unfulfilled. Whether a party intentionally breached the contract, or disaster struck and they were simply incapable of fulfilling the contract, terms go unmet.
There are a few different types of contractual breaches. This article will discuss the fundamental breach—what it is, why it happens, and what can be done about it.
What is a Fundamental Breach?
A fundamental breach is a breach of contract where the offending party fails to complete a contractual term that was so fundamental (hence the name of the breach) to the contract that another party was prevented from fulfilling their own responsibilities.
This type of breach is not a subtle one, and it often is grounds for the aggrieved party to cancel the contract entirely.
For example, suppose John, Deborah, and Alex decide to strike a deal. Alex wants to buy a pizza from John. John agrees, but he can’t deliver it to Alex. Deborah contracts to be the delivery person, and arrives to pick up the pizza. John, however, did not make the pizza.
Because John never made the pizza, Deborah cannot deliver it, and Alex cannot pay for it. Because John failed to comply with so basic a premise of the agreement (i.e. to make the pizza) neither Deborah nor Alex can fulfill their portions of the contract.
Deborah, whose loss amounts to more than just a pizza but also includes the money that she would have earned had she been able to deliver the pizza, has grounds to sue for damages. That may be a little extreme, considering it was just one pizza, but if it were a larger scale deal that went south, that may be the best way to mitigate her losses. Alex, likewise, has grounds to cancel contract entirely and move to a separate vendor to procure pizza.
What Legal Recourses do I Have?
There are a few different courses of action that can be taken, and they are appropriate in different situations. You will need to decide which one will be best for your particular business and situation.
Specific Performance: You can request a court order that all parties be required to complete the terms of the contract. This is a bit of a bullying move, but it is effective in getting the required goods and services contracted for.
Rescission: Cancel the contract, return the money (or have it returned to you), and forget this ever happened. With this method, you have made a friend, perhaps, but you’re also left in the lurch a little bit.
Reformation: Re-write the contract to be more versatile, forgiving, or helpful to the party who could not fulfill the contract. This is a good political move to make, as it gives you the upper hand in negotiations and makes you appear the benevolent friend, but it does extend the life of the contract and delay delivery.
Sue for Damages: When nothing else can be done, wash your hands of the situation and reclaim the money for damages that the offending party has caused. This is a good move to make when your company has no other means of paying the damages, and you don’t particularly care about maintaining fantastic relations with the offending party.