Consequences of Breach of Contract: What Are They And What Can You Do?

Consequences of breach of contract

You've done your homework.  You've saved up.   You got quotes, and you chose (what you thought to be) the best house painter.   The contractor agreed to do the job at your price.  

Two weeks into the job, he stops painting.   He does not explain but simply disappears.   The painting contractor publicly breached the contract.   You can now sue him.  

This blog looks at the consequences of breach of contract.

What types of breaches are there?   We also discuss breach of contract remedies briefly.

 

A common contractual dispute

When two parties enter a contract, the expectation is that both will uphold their end of the bargain.  Unfortunately, it does not always happen.  

 

When is an action ‘breach of contract?’

Look at the contract.

To know if an action is an actual breach of contract, you'll have to review the entire agreement.   What are the duties of each of the parties, or other relevant terms? 

A contract can have financial requirements, legal requirements, technical- or service requirements. 

Some deals need continuous reports on how things are going.   Should any of these requirements are not met, the contract has been broken.

Consider the following:

  • Was the original contract valid?
  • Was it actually broken?  
  • Did one of the parties lose money because of the breach?
  • Was the breach intentional, or not?

An example of a breach of contract can be when a service provider does not complete a project on time, as stated in the agreement.  If the original contract was valid, if the owner lost money and if the breach was intentional, the owner is allowed to shout: ‘Penalties!’

Most contracts already contain remedy instructions.    A section in the contract will state what the consequences of a breach of contract are.  

 

Different types of contract breach

The consequences of breach of contract will depend on what the type of violation is.

 

Material Breach

Say, our painting contractor had a huge contract.  He had to paint the interior walls of ten apartments of an Airbnb Superhost.    He only painted five apartments and then disappeared.

Because of this type of breach of contract, the Airbnb owner can bring a lawsuit for specific performance.   The painting contractor failed to perform under the conditions (or the 'materials' of the contract), and the injured party suffered.  

The contractor can be forced to finish painting the rest of the apartments.

 

Fundamental breach

There you are, ready to start painting the apartments.  When you arrive, there are still people residing in the flats, and they know nothing about your coming.   You drive around and find out that this is the case in seven of the ten apartments.  The Airbnb host kept on renting out his properties and did not prepare for you coming.    

A fundamental breach of contract occurred.  The other party acted in a way that makes it impossible for you to uphold your end of the bargain.   The painting contractor can now bring a lawsuit against the landlord and force him to get everyone out so that he can start painting as per the conditions of the contract.

A further consequence of a fundamental breach of contract can be to end the contract.   The painting contractor would be allowed to terminate the agreement and seek legal relief immediately. 

 

Anticipatory breach

The Airbnb host expected the painting contractor to finish up all the apartments by 28 February.   If he arrives on-site and sees just two of the apartments finished by 21 February, he can bring a lawsuit for anticipatory breach of contract.  

It would be highly unlikely that the painter could complete the remaining eight apartments in just one week.

 

Minor breach

To continue our paint example, a minor breach of contract would be that the contractor neglected to paint the last two rooms of the final apartment on time.  

The Airbnb host can’t sue for damages, but he can claim some money back or force the painter to paint the remaining walls.

 

A breach of contract happened.  What are the consequences of breach of contract?

  • You are the party breaking the contract:   You must inform the other party before they discover something is amiss.   
  • You discovered the breach:   US courts will prefer if you take the matter up with the other party before dragging them off to court.   Give them a chance to fix things without the legalities.  

Are your hands clean? 

If the 'innocent' party purposefully make a breach of contract worse to maximize the damages, it is called the doctrine of 'unclean hands.'   In this case, both parties did wrong and damages cannot be claimed. 

 

There are several possible consequences of breach of contract

A simple matter of resolving a breach of contract will be to force the other party just to finish what they've started – therefore, fulfill their contractual responsibilities.   But, often, it is not an option for the harmed person. 

As we’ve discussed here, a fundamental breach of contract differs from a minor breach of contract.   In some cases, the injured party would have no interest in pursuing the rest of the agreement.

Depending on the specific breach of contract remedy, the court can award monetary damages.  

Here is a summary of the different types of breach of contract remedies, or, if you want, some of the consequences of a breach of contract.

  • Restitution

The goal of restitution is ‘restoration.’   The idea is to put the injured party back into the position he was before the breach of contract happened.   It is a penalty to ‘give back’ the loss.

  • Compensatory damages

Compensatory damages will compensate you for damages sustained.   Say your ‘freshly-painted’ apartments were already advertised and booked ahead for the next three months.   Compensatory damages here would mean calculating the total ‘cost’ of lost income to the plaintiff.

  • Punitive damages

Punitive damages are awarded in punishment.   The aim is to deter the defendant from ever doing what he did again.  

This consequence of a breach of contract is chosen when compensatory damages are not enough to compensate the plaintiff for his/her losses.

  • Liquidated damages

The term ‘liquidated damages’ are usually included in a contract under its own heading.   It is used when actual damages will be impossible to prove.  The contract would also set out what circumstances will contribute to a breach in this case. 

An example of this in the IT world would be when one company discloses source codes and destroy certain trade secrets.  How can one prove what the value of source code was or would be? 

Such a contract would have liquidated damages build into the contract between the parties.   It is not to say the whole amount would be paid as a consequence of a breach of contract, but it can give guidance.

 

How to protect yourself from a breach of contract

The parties entering into a contract must perform under the conditions of the contract.   They signed a contract, and they have an obligation to each other.   Some call it their 'legal duty.'

This piece tackled the consequences of breach of contract.  Luckily, the law has remedies for breach of contract that protect the parties.   

Even so, it can cause frustration, waste your time, and cost you a lot of money.

Find a top breach of contract lawyer

BestLegalChoice vets top talent breach of contract attorneys who deal with different types of contracts in business law. If you require the help of a diligent contract law attorney to safeguard and look out for your business’s interests, you can post your legal request here. We only accept a small percentage of lawyers who apply to our platform that must pass our due diligence process, or call (800) 390-3293, and we will be glad to assist you with any of your contract and business legal needs.

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