A contract has been breached when one or both parties has failed to perform their duty. Each party has a duty or obligation to the other party. Duty can be almost anything, but it is usually a payment, good, or service.

What Happens When Someone Breaches a Contract?

The first step in determining if you have a breach of contract case is to read the entire contract. While you are reading you should mark or highlight the specific terms that are important such as each parties duties and any terms regarding breach.

The second step would be to determine if the contract already provides a remedy within it. Most contracts have a section in them that states what happens if the parties breach. This part of the contract is generally called the “remedy” section and often includes mandatory arbitration and damages.

If you are the breaching party then you have an obligation to tell the other party if you are actually  aware of the breach. If you are the non-breaching party and you discover a breach then then courts generally prefer that you inform the breaching party and give them an opportunity to fix their breach before taking them to court.

By giving the other party the benefit of doubt and the opportunity to fix their mistake, the court is more likely to favor the non-breaching party. It will also protect the non-breaching party from any accusations of unclean hands, which is when the non-breaching party purposefully tried to make the situation worse in order to maximize their damages.

If the two parties are both aware of the breach and cannot resolve the matter on their own, then this would be the time to consult an attorney. An attorney will be able to determine if there is enough to prove actual damage.

The type of breach determines the amount of contract damages and the appropriate remedy. The intent of contract damages is to restore or replace the damage that was done, but not to give more.

What are the Penalties If You Breach a Contract?

There are several types of remedies, but the most common are the following:

  • Monetary damages means that the court awards money for the breach. This may also be referred to as expectancy damages. The three most common types of monetary damages are:
    • Compensatory damages are the most common. This is when they court awards the non-breaching party the amount they were promised.
    • Punitive damages are rarely awarded in contract disputes and are usually only award in extreme cases, such as, fraud.
    • Restitution damages means that the court awards the non-breaching party the amount that they paid. The breaching party “restores” or returns the money that they took.
  • Specific Performance means that the court forces the breaching party to perform the duty or deliver the goods they promised in the contract.

The other remedies available include:

  • Nominal Damages: occurs when there is no actual monetary damages or the amount of out-of-pocket damages are very low (sometimes as low as $1). The court usually awards nominal damages because the Plaintiff wants the breach on record.
  • Liquidated Damages: typically an amount of estimated damages that the parties agree upon at the time of signing.
  • Quantum Meruit: refers to awarding the non-breaching party an amount to which they deserve. It is correlated to the reasonable value of the service they provided.
  • Cancellation: a clause found within the contract that states the amount of compensation that will be due to the non-breaching party if the breaching party choses to cancel the contract.

Do I Need a Lawyer to Avoid Contract Disputes?

Lawyers can help draft contracts and assist with contract negotiations. Additionally, if you find yourself in a contract dispute an attorney can help navigate through the terms and advise on how to proceed.

A lawyer may also help keep the dispute out of court which would help deter additional costs. Therefore, if you are in a breach of contract situation it would be wise to contact a local business attorney to ensure you are getting the best legal remedy available.