The breach of contract is a legal situation that can occur in different contractual modalities, and which entitles the party affected by it to terminate the agreement and even demand compensation for the damages suffered.
As there are different types of obligations, you should bear in mind that breach of contract can produce a wide variety of effects, which are as follows.
What is a breach of contract?
Breaching a contract means failing to fulfil the obligations arising from the agreement between two parties that had been reached.
A contract is still an agreement between two parties that generate rights and obligations for both. When there is a breach, what occurs is a rupture of that commitment, causing damage to the party that has complied.
The breach of reciprocal obligations can be total or partial. That is to say, the party may fail to perform all or only part of the obligation.
In either case, the incomplete performance of the commitment given gives rise to the other party being able to take measures to protect its rights.
What happens if there is a breach of contract?
When one of the parties fails to comply with the terms of the agreement, the aggrieved party can go to court to seek:
- Performance of the obligation.
- Rescission of the contract.
- Compensation for the damages caused by the breach of contract.
Although the law determines what we can do in each specific case of breach of contract, it is common for the contracts themselves to determine the rights of the injured party when the other party fails to fulfil its obligations.
Types of breach of contract
Breach of employment contract
In the case of an employment contract, if the defaulting party is the employee himself, the employer is entitled to dismiss the employee.
For example, if a person is repeatedly late for work, he/she is failing to comply with a certain timetable and can therefore be dismissed.
When it is the employer who fails to fulfil his obligation, it is the labour legislation (Workers’ Statute) that determines what the consequences will be in each specific case.
Thus, if an employer breaches his duty to respect the rights of his employees, and carries out a dismissal not based on any legal grounds, this will be declared null and void and he will be obliged to reinstate that person in his company.
One of the characteristics of breaches of obligations in labour matters is that, in most cases, before being able to go to court, it is required to go through conciliation proceedings.
Mediation is an out-of-court dispute resolution system that attempts to bring the parties to an agreement so that they do not have to resolve their dispute before the judicial authority.
Breach of earnest money contract
The earnest money contract is very common in the sale and purchase of goods that have a high price, such as real estate. Through it, both parties undertake to conclude the legal transaction in the future.
Here, non-performance gives rise to strict liability, as it can cause significant damage to the other party. Let us assume that two people agree on the purchase and sale of a property, which they will conclude one month later when the buyer has completed the formalities with the bank to be able to access a mortgage loan.
It could be that, by the time the contract is signed, the seller has transferred the house to someone else. Or the buyer has not obtained sufficient financing.
In both cases, there is a breach that frustrates the expectations of the other party.
The earnest money contract involves the delivery of money by the buyer to the seller as a deposit. Thus, the buyer acquires the commitment to acquire the property in the future, and the seller must transfer it to him.
The contract itself foresees that, in the event of non-performance, the earnest money will operate as compensation. If the buyer defaults, the seller keeps the money paid as a deposit. If the seller defaults, the buyer can demand the return of the deposit plus a percentage of the deposit.
If the seller does not return the deposit or pay the agreed compensation, the buyer can resort to an order for payment procedure.
Non-compliance with debt acknowledgement
From contracts for the provision of services (among others), debts may arise, and in respect of these debts, a debt acknowledgement contract or document may be concluded, which is usually done to avoid legal costs.
It is usual to include, in this type of contract, a clause referring to the consequences of breach of contract. For example, establishing the amount to be paid in damages if the contract is not fulfilled.
In the sale of goods and services, in an employment relationship, in a rental property… Breach of contract can occur in many legal relationships. Fortunately, the regulations regulate what must be done in each specific case to be compensated for the damage suffered. If you have any questions on this subject, please contact our tax advisors in Barcelona.
