contract is an agreement between two parties in which a legal obligation is created for each of them to perform specific acts. These specific duties could include rendering a payment, or delivering goods. In order for a contract to be legally enforceable, each party must exchange something of value. This is legally referred to as consideration. Contracts may be oral or written; however, courts prefer that agreements be put into writing, and there are some contracts that are only legally enforceable if they are in writing.

Breach of contract occurs when one or both of the parties involved fails to uphold their agreed upon duties. Duty can refer to just about anything, but it typically refers to a payment, good, or service, as mentioned above. Some common breaches include failure to perform duties or impossibility (one party makes the other party’s duties impossible to perform). A breach could be either partial or impartial, and the legal consequences for each of these types of breach differ.

What Happens When a Contract is Breached?

Before you can determine if you have a breach of contract case, you will need to thoroughly read and review the entire contract. Take note of any especially relevant information, such as the duties of each party and any terms regarding the breach.

The next step is to determine if the contract already contains language or instructions providing a remedy. Most contracts will contain a section in them stating what will happen if the parties breach. This section is often referred to as the remedy section, and also may include mandatory arbitration and damages.

If you are the breaching party, and you are aware of that, you have an obligation to inform the other party of the breach, before they encounter the breach themselves. If you are not the breaching party, and you discover a breach, the court will generally prefer that you inform the breaching party before taking them to court.

This is so the breaching party is given a chance to fix the breach without any legal consequences. In doing so, and giving the other party the benefit of the doubt, the court is more likely to favor the non-breaching party when making decisions regarding the breach.

There can also be instances of unclean hands, which is when the non-breaching party made an intentional and purposeful attempt to make the situation worse in order to maximize the damages. Under this doctrine, neither party would be found liable because both parties have “unclean” hands, or in other words, both parties committed wrongdoings which lead to the breach.

What are Some Penalties for Breach of Contract?

The most common penalties for breach of contract include:

  • Monetary Damages: The court awards a sum of money for the breach. This is also referred to as “expectancy damages.” Compensatory damages are the most common. Compensatory damages occur when the court awards the non-breaching party what they were originally promised in the contract, but were not going to receive because of the breach. Punitive damages are not generally awarded in contract disputes unless the case is extreme, such as fraud. Restitution damages are also common. Restitution damages are when the non-breaching party is awarded the amount that they paid, and the breaching party restores the money that they took;
  • Specific Performance: This refers to an instance in which the court forces the breaching party to perform the duty, or deliver the goods or service, they agreed to in the contract;
  • Nominal Damages: This remedy occurs when there are not any actual monetary damages, or when the amount of out of pocket damages are very low-sometimes as low as one dollar. The court would usually award nominal damages because the Plaintiff has requested that the breach be on record;
  • Liquidated Damages: This refers to an amount of estimated damages that the parties agree upon at the time of signing the contract;
  • Quantum Meruit: The non-breaching party is awarded an amount which is correlated to the reasonable value of the service they provided; or
  • Cancellation: This refers to a clause within the contract which states the amount of compensation that will be owed to the non-breaching party if the breaching party decides to cancel the contract.

Remedies for breach of contract can be divided into legal remedies and equitable remedies. Legal remedies consist of monetary damages for economic losses, such as those described above. Equitable remedies refer to one party being compelled to take action in order to correct the breach, such as cancelling the old contract and drafting a new one, or rewording the old agreement.

Do I Need an Attorney for Help with Breach of Contract Penalties?

A knowledgeable and qualified business attorney can help draft contracts, as well as assist with contract negotiations, which could prevent any breaching or disputes before they occur. If a contract dispute does occur, the attorney can review the contract to identify the breach and offer solutions. Further, an experienced business attorney will represent you in court, if necessary.