When you make a contract, there’s always the possibility that the other party or parties involved will breach their legal obligations. As a result of a shipment delay, financial issue or other unexpected issues, your business could suffer from severe damages. When a breach happens, you may have a legal battle on your hands.
You may be able to avoid a legal battle early by establishing what would happen if a contract breach arises. You could include a term that clarifies what parties are expected to do if they breach their contract. Here are three kinds of contract breach resolutions to consider:
1. Seek damages
The most common resolution to a contract breach is to seek damages. Your business may, for example, seek compensatory damages. Essentially, the party that breaches the contract would have to directly pay the non-breaching party as if the breach never occurred.
If a party caused an intentional severe damages when they caused a breach, they may be required to pay punitive damages. Punitive damages are intended to punish a breaching party by having them pay above and beyond what would compensate the non-breaching party.
A contract may state that a breaching party is required to pay liquidated damages. Liquidated damages are amounts negotiated in advance when it’s hard to ascertain what the actual damages may be. A Down money deposit on a contract that is forfeited if you cancel is the most typical liquidated damage provision.
2. Specific performance
A court may order the breaching party to fulfill their end of a contract through a resolution process called specific performance. This often happens if damages are not sufficient alone to make the injured party whole again.
3. Cancellation and restitution
A contract may also be canceled, but unless there is a right to cancel, that is a breach and the non-breaching party may still wish to sue for restitution to cover their losses if they suffered any. They may have an obligation to mitigate their damages.
If a party breaches their contract, it may help to understand what legal options are best to take for your business.