Contracts govern most things we do in our lives. From car loans, to mortgage agreements, to attorney-client agreements, individuals come together all the time to form contractual relationships. When are contractual relationships breached?
Under traditional contract law, a breach occurs when a (1) party is under an absolute duty to perform, this (2) absolute duty of performance has not been discharged, and there is a (3) failure to perform in accordance with the contract’s terms. The non-breaching party, in turn, must be willing and able to perform the terms of the contract.
Once this has been established, the next question is whether the breach is minor or material. In determining materiality, the law generally looks at the amount of the benefit received by either party, adequacy of damages, extent of part performance, likelihood of performance, etc. If the breach is material, the non-breaching part may rescind (i.e., bring to an end) the contract and will have an immediate right to all remedies for breach of the entire contract, including total damages. If the breach is minor, then there are not as many things that can be done.
What remedies are available in instances of breach? It depends on the contract, but generally contract law disallows punitive damages in breach of contract actions. More often than not, then, the most common remedy is compensatory damages, which aims to put the non-breaching party in the position where he or she would have been had the contract been performed. In some instances, consequential or incidental damages may be awarded from losses which occurred downstream as a result of the contract going unfulfilled. Liquidated damages — damages provisions contained in the contract itself — may also be available. Lastly, in certain circumstances, specific performance can also be a remedy. Specific performance is an equitable action whereby the non-breaching party petitions the court to command the breaching party to perform his or her end of the contract. This remedy is generally reserved to contracts where money judgments would be inadequate (e.g., the sale of a unique piece of art).
Because it is often difficult to determine when a “material” breach has occurred, and because contractual remedies often hinge on the nature and subject matter of the contract, consult legal counsel to ensure that the correct remedy is applied to a breaching party.