Providing legal excellence for over 65 years in Kentucky

What constitutes a breach of contract?

On Behalf of | Feb 9, 2021 | Business and Commercial Litigation

Operating a business is not always perfect. Things go wrong and changes need to be made to keep a business running as smoothly as possible. Business contracts are often pivotal to a business operating. Thus, when another party breaches a contract, this could generate problems and cause major losses. Thus, it is important for business owners to understand what a breach of contract looks like and what options they have when it comes to taking action to remedy the matter.

Breach of contract elements

An agreement is formed when a business contract creates certain obligations for each party of the agreement to fulfill. When a party fails to fulfill any of their obligations outlined by the agreement, this is considered a breach. A breach is often defined by the agreement itself. It could occur when a party failed to perform on time, does not perform in accordance with the terms of the agreement or fails to perform at all.

When a breach occurs, it is categorized as being either material or immaterial. This helps establish the proper remedy for the breach of contract. If it is material, then it is an essential component of the agreement. If it is immaterial, then it is considered to be not essential or pertinent. In other words, a material breach could mean that the contract cannot be resolved while a immaterial breach could still allow for the contract to remain but with slight modifications.

Remedies and damages

The remedies available for a breach of contract include damages, specific performance and cancellation and restitution. With regards to damages, one could seek compensatory damages, which would put the non-breaching party in the position they would be in had no breach occurred. There is also punitive damages, which punishes the breaching party, nominal damages, which are token damages when no actual money is lost by the breached and liquidated damages, which the parties previously identified what would be a reasonable estimate of the actual damages that would result from a breach.

Specific performance orders the breaching party to perform the duties under the breached contract. Cancellation and restitution is when the non-breaching party cancels the contract because of the breach and sues for restitution because the breaching party received benefit.

When a business is dealing with a breach of contract, this could evolve into a major business dispute. Whether it means taking steps to mediate a resolution or taking legal measures to enforce the terms of the contract, it is important that a business takes the necessary steps to not suffer because of the breach. Therefore, it is imperative to understand how to remedy this and other business law matters.