A contract is a legally binding agreement that establishes trust and security between two or more parties. It serves as a formal document that outlines the rights and responsibilities of each party involved. When a party fails to fulfill their obligations under the contract, they may be held liable for damages as stated in Article 1170 of the Civil Code of the Philippines.
In this blog, you will discover the importance of contracts in agreements, the legal steps to take when one party fails to perform their obligations, and whether verbal agreement is valid.
What is a Breach of Contract?
A breach of contract occurs when one party fails to fulfill any of its contractual obligations. This can include failure to deliver goods or services as promised, failure to complete work within the agreed-upon timeframe, defective or substandard performance, or failure to pay for goods or services rendered.
What are the Types of Breach of Contract?
Breach of contract happens in different situations, which are as follows:
1.) Material Breach
Material breach is a serious violation of the contract that allows the aggrieved party to cancel the contract and pursue damages.
Example of Material Breach
Kristine hires a contractor to build her house. They make an agreement that the house will be fully and strongly built after six (6) months. However, after the agreed timeframe, the work is only 40% complete and the materials used are substandard, which made Kristine decide to cancel the contract and sue the contractor for damages to recover her losses.
2.) Anticipatory Breach
Anticipatory breach happens when one party clearly states or implies that they will not fulfill their contractual obligations.
Example of Anticipatory Breach
John signs a contract with a supplier to deliver 350 custom-made sandals by April. In March, the supplier informs John that they will not be able to fulfill the order due to a material shortage. Since the breach is clear before the deadline, John takes legal action to claim damages and finds a new supplier.
3.) Minor Breach
Minor breach is a less significant breach that only allows the affected party to recover actual damages, but they cannot terminate the contract.
Example of Minor Breach
A furniture company delivers a custom-made dining table a few days late, causing a slight inconvenience to the buyer. Since the table is still in perfect condition and meets the agreed specifications, the buyer can request compensation for the delay, but cannot void the contract.
4.) Actual Breach
Actual breach happens when a party fails to meet their obligations when they are due.
Example of Actual Breach
Amanda agreed to pay monthly rent on the last day of each month. However, she fails to pay for three consecutive months despite multiple reminders from her landlord. Since the payment was due and not fulfilled, her landlord takes legal steps to evict her and recover the unpaid rent.
How to Prove that a Contract Has Been Breached?
To successfully claim that the contract has been breached, it is crucial to ensure that it is legally enforceable and your obligations specified in the contract are fulfilled. If not, you should have a valid reason for not doing so. The offending party must be informed of their failure to perform and given a chance to resolve it, unless immediate action is required due to the nature of the contract.
How to Sue for Breach of Contract?
When an individual fails to fulfill their obligations as stipulated in the contract, legal action can be taken. As an aggrieved party, you may follow this procedure:
Review the Contract
By reviewing the contract, it will help you determine and justify the damages you have suffered due to the breach. Through this process, a lawyer can guide you in assessing the damages to build a strong case. They can also provide the appropriate legal remedies to pursue.
Send a Demand Letter
A formal demand letter must be given to the party who has breached the contract. It should clearly state the breach, the specific obligations that were not met, and a request for a solution within a specified timeframe. This may encourage the breaching party to perform their contractual obligations or initiate negotiations.
Mediation
If the issue has not been resolved through negotiations, mediation may be a good option. A neutral third party will help both parties reach a voluntary agreement. It is also less formal than court and can often lead to a faster resolution.
Arbitration
This legal step is necessary when the mediation fails to resolve the issue. The arbitrator/s will make a binding decision to resolve the issue and ensure that the decision made is fair for the parties involved.
File the Lawsuit
If the breaching party refuses to fulfill their obligations or if no resolution can be reached, filing a lawsuit in the appropriate court may be necessary. The court will evaluate the case based on the terms of the contract, evidence presented, and relevant laws.
Court Order
In some cases, the court may order specific performance, which requires the breaching party to fulfill their contractual obligations instead of compensating the other party with damages. However, if specific performance is not applicable or desired, you may seek monetary compensation for the losses you suffered as caused by the breach.
Can You Go to Jail for Breach of Contract?
You may not be imprisoned due to breach of contract as it is a civil case, and not a crime. However, if the breach involves fraud then it will be considered as a criminal offense.
Is Verbal Agreement Valid?
Yes, verbal agreement is as valid as written contracts or agreements. However, it may be challenging to prove its existence and the specificity of the agreement. A witness, proof of transaction, or any supporting documentation related to the agreement would be crucial to prove its existence. To avoid any potential legal issues, it is advisable to have a written agreement, even for a minor deal. You may also consult with a lawyer to know the legal remedies available.
Need further information and assistance regarding Breach of Contract? Talk to our team at Duran & Duran-Schulze Law to know more about the requirements and process. Call us today at (+632) 8478 5826 or +63 917 194 0482, or send an email to info@duranschulze.com for more information.
