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By Lawfarm Team July 30, 2016


What is a Breach of Contract?

A business contract creates certain obligations that are to be fulfilled by the parties who entered into the agreement. Legally, one party's failure to fulfill any of its contractual obligations is known as a "breach" of the contract. Depending on the specifics, a breach can occur when a party fails to perform on time, does not perform in accordance with the terms of the agreement, or does not perform at all. Accordingly, a breach of contract will usually be categorized as either "material" or "immaterial" for purposes of determining the appropriate legal solution or "remedy" for the breach.

What Happens after a Contract is breached?

When a breach of contract occurs or is alleged, one or both of the parties may wish to have the contract enforced on its terms, or may try to recover from any financial harm caused by the alleged breach.

If a dispute over a contract arises and informal attempts at resolution fail, the most common next step is litigation.  The parties may be also able to resolve the issue in small claims court.

Courts and formal proceedings are not the only options for people and businesses involved in contract disputes. The parties can agree to have a mediator review a contract dispute, or may agree to binding arbitration of a contract dispute. These out-of-court options are two methods of "alternative dispute resolution."

Remedies for a Breach of Contract

When an individual or business breaches a contract, the other party to the agreement is entitled to relief (or a "remedy") under the law. The main remedies for a breach of contract are:

  1. Damages,
  2. Specific Performance, or
  3. Cancellation and Restitution


The payment of damages -- payment in one form or another -- is the most common remedy for a breach of contract. There are many kinds of damages, including the following:

  1. Compensatory damages aim to put the non-breaching party in the position that they had been if the breach had not occurred.
  2. Punitive damages are payments that the breaching party must make, above and beyond the point that would fully compensate the non-breaching party.  Punitive damages are meant to punish a wrongful party for particularly wrongful acts and are rarely awarded in the business contracts setting.
  3. Nominal damages are token damages awarded when a breach occurred, but no actual money loss to the non-breaching party was proven.
  4. Liquidated damages are specific damages that were previously identified by the parties in the contract itself, in the event that the contract is breached. Liquidated damages should be a reasonable estimate of actual damages that might result from a breach. 

Specific Performance

If damages are inadequate as a legal remedy, the non-breaching party may seek an alternative remedy called specific performance. Specific performance is best described as the breaching party's court-ordered performance of duty under the contract.  Specific performance may be used as a remedy for breach of contract if the subject matter of the agreement is rare or unique, and damages would not suffice to place the non-breaching party in as good a position as they would have been had the breach not occurred.

Cancellation and Restitution

A non-breaching party may cancel the contract and sue for restitution if the non-breaching party has given a benefit to the breaching party. "Restitution" as a contract remedy means that the non-breaching party is put back in the position it was in prior to the breach, while "cancellation" of the contract voids the contract and relieves all parties of any obligation under the agreement.

Acquire Professional Legal Aid for the Breach of Contract Dispute

If you have been named in a breach of contract proceeding or believe another party has failed to honor its contractual obligations to your company, quite a bit may be at stake. Before deciding how to proceed, it is advisable to consult with a business and commercial law attorney near you for acquiring their expert opinion and advice.



Tags: contract , breach of contract , remedies for breach of contract

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