What is a Breach of Contract?
In contract law, a breach of contract occurs when one of the parties involved in the contract fails to perform a duty or obligation that they agreed to in the contract, which can be intentional or unintentional.
For a breach of contract to occur, the contract must be valid and legally binding, meaning that all parties entered into the agreement with a mutual understanding of the terms and conditions. A breach of contract is considered to have occurred when the defaulting party fails to perform its obligations without any valid reason or justification, which is known as a "lawful excuse."
Failure to perform obligations can take several forms, including:
Late performance
- A contractor was supposed to complete a renovation project within three months, but it took five months to finish it.
- A supplier was supposed to deliver goods by a specific date, but they deliver the goods a week later.
Non-performance (i.e. when a defaulting party refuses to perform what he has promised to do)
- A tenant refuses to pay rent despite being contractually obligated to do so.
- An employee refuses to work their scheduled shifts despite being contractually obligated to do so.
Defective performance (i.e. the defaulting party fails to fulfill a promised objective or end-state)
- An electrician installs faulty wiring in a building, which results in a fire.
- A web developer fails to create a website that meets the specifications outlined in the contract.
Doing the very thing the defaulting party has promised not to do
- An employee, who signed a non-compete agreement, starts working for a competitor.
- A company breaches a confidentiality agreement by sharing confidential information with a third party.
Preventing oneself from fulfilling a contractual obligation
- A supplier fails to provide necessary information to a manufacturer, which prevents the manufacturer from fulfilling its contractual obligations.
- A landlord fails to provide a tenant with access to necessary facilities, such as heating or water, preventing the tenant from fulfilling their obligations under the lease agreement.
What are the Remedies for Breach of Contract?
Remedies for breach of contract are legal solutions available to businesses when the other party fails to fulfill its obligations under a contract. These remedies help to compensate the injured party for any loss suffered due to the breach. There are two main types of remedies for breach of contract: legal remedies and equitable remedies.
- Legal Remedies
Legal remedies are often the most common remedies for breach of contract. One of the most common legal remedies is compensatory damages, which are awarded to the non-breaching party to compensate them for their loss resulting from the breach. Compensatory damages are typically awarded to cover the cost of repairing or replacing the damaged property, as well as any lost profits resulting from the breach.
Another legal remedy for breach of contract is liquidated damages, which are a predetermined sum agreed to by both parties at the time the contract was signed. These damages are designed to compensate the non-breaching party for any loss that may result from the breach. For example, in a construction contract, a liquidated damage clause may be included to compensate the owner if the contractor fails to complete the project by the agreed-upon deadline.
- Equitable Remedies
Equitable remedies, on the other hand, are designed to address situations where legal remedies are insufficient or inadequate. Specific performance is one common equitable remedy where the court orders the breaching party to perform their obligations under the contract. For example, if a unique piece of property is the subject of the contract, the court may order the breaching party to transfer the property to the non-breaching party.
Injunctions are another type of equitable remedy that prevents the breaching party from continuing the breach or causing further harm. For example, if a company breaches a non-compete clause in an employment contract, an injunction may be issued to prevent the company from continuing to compete against the non-breaching party.
What are the Remedies Available for Breach of Contract?
When a breach of contract occurs, businesses need to know what remedies are available to them to recover their losses and protect their interests. The remedies for breach of contract can vary widely depending on the specifics of the breach and the terms outlined in the contract. Some of the most common remedies available to businesses include:
1. Compensatory Damages
When a breach of contract occurs, compensatory damages are the most common remedy used to compensate the injured party for any financial loss suffered due to the breach. The amount of compensatory damages is typically calculated based on the actual loss incurred by the injured party, such as lost profits or expenses incurred to mitigate the breach.
2. Punitive Damages
While not commonly awarded, punitive damages are intended to punish the breaching party for their actions. These damages are usually only awarded in cases where the breach was particularly egregious or intentional. Unlike compensatory damages, punitive damages are not meant to compensate the injured party for their losses, but rather to serve as a deterrent for future breaches.
3. Liquidated Damages
In some cases, contracts will include a clause that specifies a predetermined amount of damages that will be awarded if a breach occurs. These damages are known as liquidated damages and are intended to provide certainty and clarity for both parties. However, it's important to note that courts may still strike down a liquidated damages clause if it is deemed unreasonable or a penalty rather than a genuine pre-estimate of damages.
4. Specific Performance
In situations where monetary damages would not be sufficient to compensate the injured party, specific performance may be an appropriate remedy. This remedy requires the breaching party to fulfill their obligations under the contract, such as delivering goods or completing services as agreed upon in the contract.
5. Injunction
Another remedy available to businesses is an injunction. This remedy can prevent the breaching party from taking certain actions that would violate the terms of the contract, such as disclosing confidential information to a third party or competing with the other party in violation of a non-compete clause.
6. Rescission
If the breach of contract is so significant that the parties cannot fulfill their obligations, rescission may be an appropriate remedy. Rescission cancels the contract and restores the parties to their original position before the contract was signed. This remedy is often used in situations where the contract was entered into based on fraud or misrepresentation.
Where Can I Go to Resolve a Breach of Contract Dispute?
There are several remedies for a breach of contract. The first step is to attempt to resolve the matter through negotiation or mediation. If these methods fail, legal action can be taken.
Depending on the nature of the dispute, legal action can be taken in small claims court, state court, or federal court. It's important to seek legal advice to determine the best course of action for your specific situation.
How Contract Management Platforms Like Lexagle Can Help Prevent Breach of Contract
A breach of contract can have serious consequences for businesses. However, by understanding the remedies available, businesses can protect themselves and recover losses. The six remedies for breach of contract outlined in this article can be effective solutions for businesses facing a breach of contract situation. It's important to seek legal advice to determine the best course of action for your specific situation.
Prevention is always better than cure, so it's crucial to have a well-drafted contract and a good contract management platform in place to prevent breaches from occurring in the first place.
However, managing contracts and tracking their performance can be a daunting task for businesses, especially when dealing with multiple contracts at once. This is where Lexagle, a contract management platform, can help. With Lexagle, businesses can efficiently manage their contracts, monitor contract performance, and receive notifications when contract obligations are due, reducing the risk of breaches and ensuring compliance. Lexagle also provides a secure and centralised repository for contracts, making it easier to access and retrieve important contract information.
Schedule a demo with Lexagle today to discover how their platform can revolutionise your contract management process and improve your business operations.
