Navigating Contract Breaches: A Legal Roadmap
Businesses and individuals suffer serious repercussions when contracts are breached. It is vital to understand the legal fallout and the remedies you might turn to when your interests are at stake. This guide takes a close look at what happens when contracts go bad, the steps you might take to make things right, and what actions you can employ to keep your side of the deal from ending up in court.
Understanding Contractual Pitfalls
Definition of Contract Breach
A breach of contract happens when one side does not meet its obligations in a binding agreement. This can take several forms:
- Not doing what they promised by the time they said they would do it
- Doing what they promised but not doing it well enough to meet the contract’s standards
- Doing what they promised but only doing part of it (also known as “insubstantial performance”) or not doing it at all (also known as “negative performance”)
Types of Breaches
The general categories of breach of contract are as follows:
- Material breach: A major violation that undermines the contract’s basic purpose. This breach allows the non-breaching party to terminate the contract and seek damages.
- Minor breach: A less serious violation that does not go to the heart of the contract. The parties operate under the contract but under somewhat strained conditions. The non-breaching party might even be entitled to some damages, but it’ll probably not be a very nice situation.
- Anticipatory breach: When the breach happens before the time the contract says it should happen, which means that some conditions of the contract aren’t met. For instance, if you are contracted to perform and you don’t show up because you already know you’re not going to or can’t perform.
Consequences of Breach
The far-reaching consequences of a breach of contract include:
- Financial losses.
- Operational disruptions.
- Damage to business relationships and reputation.
- Potential legal action and associated costs.
According to a legal expert, “a breach of contract can have ripple effects throughout an organization, impacting everything from day-to-day operations to long-term strategic plans.”
Remedial Measures: Restoring Contractual Balance
When a contract is broken, the party that is not at fault can pursue several legal remedies:
- Damages—this means monetary compensation that is intended to put the party in the same position they would have been in had the contract been fully performed.
- Specific performance—this is an order to the breaching party to perform their contractual duties. Specific performance is often sought when the subject of the contract is unique, as with a piece of land.
Damages
The most common remedy for breach of contract is monetary compensation. The types of damages include:
- Compensatory damages put the non-breaching party in the position they would have been in had the contract been fulfilled.
- Consequential damages cover indirect losses resulting from the breach.
- Liquidated damages are a pre-determined amount specified in the contract.
- Punitive damages are rarely awarded in contract cases and are intended to punish egregious conduct.
Specific Performance
In certain instances, especially those that involve distinct items or property, a court might mandate that the party in breach of a contract actually fulfill the terms of that contract. This remedy is called specific performance.
Injunctions and Restraining Orders
Court orders can:
- Prevent additional violations
- Maintain dispute resolution status quo
- Safeguard private, sensitive, or confidential information, including trade secret material
Rescission and Restitution
Cancelling the contract and returning to the positions the parties occupied before the contract was made is known as rescission. The parties to the contract must return any benefits received under the contract; that is restitution.
Read Also: Common Pitfalls in Contract Drafting and How to Avoid Them
Frequently Asked Questions
Q: Is it possible to bring a lawsuit for contract violation in a small claims court?
A: It is possible to bring a lawsuit for contract violation in a small claims court. However, there are usually limits on the amount of money you can ask the court to give you. To know for sure, you should consult the rules of your local court.
Q: What are the statutes of limitations for breach of contract cases?
A: The statutes of limitations vary depending on the jurisdiction and type of contract. For most contracts, the applicable statute of limitations is between 2 and 10 years. Consult a local attorney to determine the correct statute of limitations for your case.
Q: Is it possible to reach an out-of-court settlement?
A: Yes, many contract breach quarrels are settled by straightforward negotiation or mediation before ever entering a courtroom. This route is usually quicker and less costly than traditional litigation.
Q: Do I need a lawyer to file a breach of contract lawsuit?
A: While it’s not necessarily required, having an attorney can help a lot. They navigate all the tough legal parts for you, and their presence alone tends to make the other side more agreeable. You can also be sure you have a strong legal argument if your lawyer is on your side.
Q: Is it possible to sue for emotional distress that arises from a breach of contract?
A: It is quite rare to see a court awarding damages for emotional distress in a breach of contract case. Their usual focus is on the economic losses that have occurred. Still, there are a few exceptions—most notably in cases where a party has behaved extremely or where the contract involved is of a personal nature.