Small businesses will encounter contracts in almost every aspect of their operations and, as a result, it is important to understand what constitutes a breach of a contract and what your options are if another party breaches a contract to which you are a party.
“Breach” Defined
A “breach” occurs when a party to a contract fails to perform its obligations in the contract without legal justification for the failure. Obviously some breaches are more important than others and the severity of the breach must be taken into account when deciding what to do if another party is in breach.
For example, if your business signs a purchase order requesting 500 widgets you intend to sell in your store and only 490 are delivered, the damages are likely small. As a result, the breach is probably immaterial and your remedies will be limited accordingly. However, if only 50 were delivered, the breach would likely be considered material and your rights would include a greater range of potential damages.
How to Redress a Breach
In most situations, simple communications between the parties will be the starting point following a breach. However, if you need to seek remedies through litigation, keep in mind that the court’s priority when a breach of contract occurs is to provide relief to the non-breaching party rather than to punish the breaching party. And further, it is uncommon to receive punitive damages following a breach of contract unless the breach was outrageous in some respect.
There are several types of remedies available to the non-breaching party.
First, you may seek expectation damages. The goal of awarding expectation damages is to put the non-breaching party in as good of a position it would have been in had the contract been fully performed. Sometimes this is done through financial remedies and other times using the enforcement of specific performance.
Second, you may seek reliance damages. The goal of awarding reliance damages is to put the non-breaching party in as good of a position it would have been in had the contract never been made in the first place. This is likely to follow a breach that leaves the non-breaching party in a worse condition than they were in prior to the execution and subsequent breach.
Finally, you may seek restitution damages. The goal of restitution damages is to provide a financial return to the non-breaching party from the breaching party to avoid any unjust enrichment of the breaching party.
If you are experiencing a breach, you may need legal assistance.
A contract and the various laws related to the contract can be complex and sometimes you need legal assistance to help you navigate a breach and the subsequent communications and litigation. In those situations, you should contact a litigation attorney at Krigel & Krigel. Our litigators have years of experience mitigating breach of contract issues.
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*This article is very general in nature and does not constitute legal advice. Readers with legal questions should consult with an attorney prior to making any legal decisions.