What happens when someone breaches a contract?

Contracts are critical to the operation of any successful business, whether they protect sensitive information, define responsibilities or set financial expectations.

When a party breaches a contract, there is the potential for considerable damage, which is why legal action may follow. As such, it is important to know what constitutes a breach and what remedies may be available to a non-breaching party.

What is a breach?

A breach refers to an act (or failure to act) that goes against the stipulations in a contract. In some cases, a breach is insignificant and does not affect the remaining terms. In other cases, a breach is serious, results in damages and possibly makes it impossible to fulfill the rest of the contract. This is a material breach of contract and can be grounds for legal action.

What happens after a breach?

After a party breaches a contract, the parties may be able to resolve the issue themselves outside of court. This can happen if the breach stemmed from an oversight or is simple to resolve without further action.

If this does not happen, then the non-breaching party may file a lawsuit against the breaching party. In doing so, the non-breaching party is in a position to secure one (or more) of the following remedies.

1. Specific performance, or a court order requiring the breaching party to fulfill its duties in accordance with the contract

2. Financial damages that serve to restore the non-breaching party’s financial standing and punish the breaching party

3. Cancellation of the contract and action for restitution

The outcome of these cases will vary based on numerous specific elements, from the nature of the breach to the language used in a contract.

Taking contract breaches seriously

Contract breaches can cause considerable damage for a non-breaching party, so it is crucial that business owners take them seriously and respond immediately. Whether this involves out-of-court negotiations or aggressive litigation will depend on the details of an individual case, which is why it can be crucial to consult an attorney for guidance.