The parties who enter into a business contract must fulfill the terms of that agreement.
If one party fails to fulfill its share of the obligations, a breach of contract occurs. What happens then?
About breach of contract
A breach occurs when one of the parties who entered into a business contract fails to meet its contractual obligations. The party might not perform as it should according to the terms of the agreement, it might not perform in a timely fashion, or it may not perform at all.
Next steps
One or both parties may seek the enforcement of the contract. However, if their attempts at resolving the problems fail, a lawsuit may be the next step. If there is a contested amount that is less than a certain dollar figure, the parties may be able to take their contract issues to small claims court.
Remedies for a breach
When one party breaches a contract, the non-breaching party is eligible for relief, also called a remedy. There are three main remedies: damages, specific performance or cancellation and restitution.
- Damages are rendered in some kind of payment and can be compensatory, punitive, nominal or liquidated
- If damages are inadequate as a remedy, the non-breaching party may seek specific performance, best defined as a court-ordered performance of duty per the terms of the contract
- The non-breaching party can either cancel the contract or accept restitution to bring the non-breaching party back to the position it held prior to the breach
Other options
With legal guidance helping you to determine how to proceed following a breach of contract, there are other options to consider. These include forms of alternative dispute resolution, such as mediation or binding arbitration.
