What Happens if Someone Breaches Their Contract?

Thursday, June 25, 2020

In the law, it is presumed that people will only enter a contract with one another if they intend to abide by the terms of that contract. However, whether by choice, mishap or circumstance, people will breach their contract, and be forced to deal with the consequences. So, what happens when someone breaches their contract, and what can be done in response?

               A breach of contract refers to any substantial violation of the terms of a legally binding contract. This can include, but is not limited to things like: failing to pay for goods delivered or services rendered, or failing to pay the amount specified; failing to deliver goods or services on time, or failing to deliver it as specified; delivering a good of the wrong size, shape, color or type; refusing to honor an indemnity agreement; and many other possible violations.

               Typically, when one party to a contract accuses the other of breaching the contract, they are first supposed to find some way to privately remedy the breach. For example, if a hardware store ordered one thousand 1/8” screws, but instead received one thousand 1/4” screws, the supplier could simply address the issue by sending the correct screws to the hardware store. Another example would be if someone failed to pay their contractor for work done on their house, they could try to work out a payment plan, if the person who hired the contractor cannot afford to pay it all at once. Either way, however, the parties are supposed to do their best to handle their problems out of court before resorting to legal action.

               If, however, the parties cannot work out a private solution to their problems, then the courts may intervene in a breach of contract case. There are several remedies the court can impose, depending on the nature and severity of the breach. For example, the court may order the aggrieved party be compensated for lost revenue, including any additional costs they took on to remedy the breach on their own. The court may also add penalties for lost business, if the breach resulted in a substantial loss in time or caused damage to the aggrieved party’s reputation, thus hindering their business opportunities. In rare cases, the court may order specific performance, essentially forcing one party to keep their side of a contract against their will, although this is typically only done in cases when it is literally impossible for anyone else to do the job (such as in cases involving professional entertainers, where one actor or singer cannot be easily substituted for another).

               However, any remedies issued by the court may also be limited by mitigating factors. For example, someone may be excused from performing their contract due to unforeseen circumstances making it literally impossible (known legally as “frustration of purpose”). The court will also consider efforts by either party to remedy the breach and thus limit the overall damages incurred. In the end, however, the cost and time investment required to fight even a simple breach of contract case is massive, and it is always easier to work out disputes privately than to fight them out in litigation.


Practice Areas: 

Business & Non-profit