If one party doesn’t perform their obligations under the terms of a contract, that’s considered a breach of contract.
This can occur when a party doesn’t doesn’t deliver what they’ve agreed to in the appropriate time frame or fails to do anything at all, or they fail to pay what was agreed upon. If the other party fulfills all their obligations, the party that meets their end of the bargain can pursue legal remedies through a court proceeding (lawsuit) or even arbitration in some cases.
For example, let’s say you enter into a contract with an electrician to install a chandelier in your dining room by Friday at noon. You pay the electrician 50 percent upfront, plus the cost of the chandelier. If the electrician then refuses to install the chandelier, you’d have a legal claim against them for breaching the contract, and you could file a claim to to get your back.
This would be a material breach of contract because it’s related to something physical that wasn’t delivered.
A breach of contract can also occur if one party notifies the other that they won’t be able to perform their duties. If the electrician calls you on Thursday to tell you they can’t install your chandelier until Saturday, that’s also a breach, but it’s known as an immaterial breach. Unless you can prove there are monetary damages, a court is unlikely to award you anything for the inconvenience.
In addition to material and immaterial breaches of contracts, there are also minor breaches, fundamental breaches, and anticipatory breaches.
A minor breach of contract is something so small that it doesn’t violate the whole contract, like the electrician finishing the job at 12:15 p.m. instead of noon.
A fundamental breach of contract is like a material breach, but more egregious — like the electrician completely disappearing with your money and your chandelier.
An anticipatory breach is when one party lets the other party know they won’t be able to fulfill the terms of the contract, like the electrician calling you on Thursday and saying he will be delayed in finishing the job.
When a breach of contract occurs, the parties can try to resolve the problem themselves. This usually works best for minor breaches of contract but in the right circumstances can even help resolve major breaches.
If the parties can’t agree on how to resolve the problem, they may choose to go to court. If the amount of money is relatively small, e.g., $5,000 or less, and depending on state laws, the situation could be handled in small claims court, which usually doesn’t permit lawyers to represent the parties. Small claims court is typically much faster than other courts, with the claim being decided on the day the parties appear before the judge to argue the case.
The parties can also choose to engage the services of a mediator or go to binding arbitration, where the arbitrator’s decision is final.
The available legal remedies depend on the situation and the breach of contract. Damages are classified into different groups:
- Compensatory damages will compensate the party that didn’t breach the contract for their direct damages. This is the most common type of legal remedy. For example, if the electrician refuses to install the chandelier, the court could order them to refund the deposit and the cost of the chandelier.
- Attorneys fees and court costs are sometimes awarded by a court in favor of the party that prevails (wins) in court. These would be in addition to compensatory damages and are designed to reimburse the party for what it cost them to bring the case to court.
- Other types of damages, such as punitive damages (designed to punish and send a message), restitution, lost profits, and other types are less common in contract cases. In fact, most sophisticated contracting parties’ contract forms specifically state that these types of damages can’t be recovered.
- Restitution occurs if the non-breaching party can prove their loss is directly due to what the other party did, which may include medical bills or property repair. For example, if the electrician installed the chandelier improperly and it fell on your dining room table during a dinner party, you could sue the electrician for the damaged chandelier, the cost to replace your dining room table, and the medical bills for you and your guests.
- Punitive damages are awarded by the court if the breaching party did something particularly egregious to breach the contract. If the electrician cut a wire and drywalled over it instead of properly removing it, and your house caught fire as a result, the court might award you punitive damages because of the electrician’s negligence.
- Specific performance requires the breaching party to perform what they agreed to under the contract. The court could order the electrician to install your chandelier — however, this remedy isn’t always available.
Keep in mind that contract law varies from state to state, so what’s awarded in California for breach of contract might be very different from what’s awarded in Florida. Regardless, knowing what constitutes a breach of contract and what the remedies are can help you when you’re drafting your own contracts or reviewing agreements before you sign them.
For more information, check out our complete guide on how to write a contract.