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Breach of Contract

Breach of Contract

What Constitutes a Breach of Contract?

A breach of contract occurs in the event one of the parties to a contract fails to fulfill his or her part of the deal. Some examples of a breach are as follows:

  • when a party simply refuses to perform the contract;
  • when a party to the contract acts in contravention of the intent of the contract; or
  • when a party makes it impossible for the contract to be performed.

A breach may be “material” or “immaterial”; that is, it may or may not matter in a significant way to the parties to the contract. In the event of a “material” breach, a number of remedies are available to the non-breaching party.

What Remedies Are Available in the Event of a Breach of Contract?

If the non-breaching party files suit against the breaching party, the non-breaching party may seek remedies including:

Equitable remedies:

  • specific performance — a court order requiring the breaching party to fulfill his or her obligations in accordance with the terms of the parties’ contract;
  • rescission — the contract is cancelled and both parties are returned to their original pre-contract positions; rescission includes the return of any deposit money; or
  • reformation — a court order which changes the actual terms of the parties’ contract to reflect the parties’ intentions.

Legal remedies:

  • compensatory damages — a sum of money to compensate the non-breaching party for his or her loss;
  • consequential and incidental damages — a sum of money to compensate the non-breaching party for foreseeable losses as a result of the breach;
  • liquidated damages — a sum of money, agreed upon by the parties in their contract in advance of any dispute, and payable in the event of a breach; and
  • punitive damage — a sum of money that is designed to punish the breaching party for his or her actions and that is typically not recoverable in breach of contract actions except for some unusual cases.

Copyright 2011 LexisNexis, a division of Reed Elsevier Inc.

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