Contracts are essential to how we live and how we conduct business. When a person or company signs a contract with us, we rely on its terms to decide what we will do next and how we will proceed. So when the other person fails to live up to their obligations under the terms of the contract, it can substantially affect our lives and business. When a contract is breached, it causes a ripple effect. For example, if company A is under a contract to provide computer parts to Company B and fails to do so, Company B cannot make computers and fulfill the orders that have been placed with them. Businesses and people who ordered from Company B have never even heard of Company A, but are affected by their failure to live up to their obligations under the contract. This is why contracts are so important to be honored whenever possible.
Recovery From Breach of Contract
Generally speaking, for there to be a viable claim for breach of contract, the person claiming that the breach occurred must prove that the contract actually exists and that its terms have been breached, and because of that breach, a loss has occurred. When a breach of contract has harmed a person or company, they may be able to receive different types of compensation. Some of these include:
- Specific Performance: Specific performance may be ordered by a court when no amount of money can make up for the breach of contract. For example, suppose Party A agreed to sell Party B a desk that Napoleon once owned and later refused to follow through with the sale. In that case, the court may order them to follow through with the sale as the item is unique and unable to be replicated or replaced.
- Liquidated Damages: Many contracts list in their terms what the damages will be if one of the parties breaches the contract. This is known as liquidated damages.
- Compensatory Damages: Compensatory damages are the amount of money needed to place the non-breaching party back in the same position they would have been in financially had the breach not occurred.
- Restitution: A party that breaches a contract should not be able to receive a financial windfall for that breach. Restitution is an equitable monetary award designed to prevent such a windfall from happening. It is not commonly awarded.
- Expectation Damages: Damages that are designed to replace the amount of money the non-breaching party expected to receive from the fulfillment of the contract.