What is a Breach of Contract and its Remedies
In an ideal scenario, both parties in an agreement will respect the terms and, therefore, no dispute would arise. However, in the real world the situation is quite different – delays happen, financial disputes and other unfortunate events occur frequently. In this article we focus on the legal aspects of a breach of contract and what to do next.
Breach of Contract: what is it?
In a professional business or financial agreements all the parties agree on certain obligations to be followed by them as part of implementing the contract. If one party fails to fulfill the contractual agreements, it will be considered a breach. A breach of contract usually occurs when a side fails to fulfill the conditions of a contract in time, does not follow the terms of an agreement accordingly, or skips the terms altogether. In order to determine the right remedy of a breach, it is necessary to categorize it either as “immaterial” or “material”.
What happens next when a breach takes place?
In case of a breach of contracts, one or both parties will try to implement the terms of the contract, or get financial compensation for the breach.
When a breach of contract arises and an informal approach at resolution fails, the next most common thing that occurs is a lawsuit. A breach that pertains to a figure in between $3,000-$7,500 can be solved in small claims court.
Besides formal lawsuits and courts, there are, however, other ways to solve a dispute arising from breach of contract. If both parties agree, they can employ a mediator to review the dispute; this may or may not lead to binding arbitration. This is a common alternative dispute resolution method.
Remedies
When a party in a contract violates one or more obligations, the other party can seek remedy under the court. The primary remedies are:
- Specific performance
- Payment for damages
- Restitution and cancellation
Specific Performance
If damage reparation is not enough, the party following the contract can seek a specific performance. It is the breaching party’s court ordered performance of duty. This is used as a remedy when the compensation for damages does not address the loss of the affected party which is in a unique situation and would have been better off had the breach not taken place.
Payment for Damages
This is the most common remedy to resolve a breach issue. There are many kinds of damages which we discuss below:
- Compensation damage is aimed at restoring the non-breaching party’s status if there was no breach in the first place.
- In a Punitive damage, the breaching party is obliged to make payments until the affected party is fully compensated. In a business setting, punitive damages are quite rare – they are a way to punish the breaching party for its derogatory conducts.
- Nominal damages are actually a token of damages for a breach that do not prove any financial loss.
- Liquidated damages were specified beforehand by the parties involved in case of a breach of contract took place. This damage reparation should be a reasonable amount calculated as a cost of any probable breach.
Restitution and Cancellation
The non-breaching party can abrogate the contract altogether or take the matters to court for restitution. The non-breaching party usually attempts restitution when it gave benefits prior to the breach. In other cases, a cancellation is ideal; which relieves all parties of their obligations under the contract.