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.
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
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.