Overview of contract breach damages and remedies
In a perfect world, business agreements would be entered into, the outcome would benefit and satisfy both sides and there would be no controversy. However, we operate in the real world, not the perfect world. Delays in the supply chain, recently – a pandemic, market shifts, and financial problems can all arise and hinder or even prevent the execution of a written contract by one party.
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What is a contract violation?
A business agreement sets out certain obligations to be met by the parties to the agreement. Legally a party is known as a “breach” of the contract in failing to fulfill any of its contractual obligations. A breach may occur, depending on the specifics, when a Party fails or fails to do what they committed as defined in the terms of the agreement.
For the purposes of an appropriate determination of a legal solution or “remedy” for the breach, the breach of contract will usually be classified as a “material breach” or an “immaterial breach.”
Contract infringement: an example
Let’s assume that ABC Corp. signs a contract with 123, Inc. to purchase some of its products with a contracted delivery date of next Monday. If 123, Inc. delivers the products on Tuesday, a day late, the breach would “likely” be considered immaterial. ABC Corp. would probably not receive cash damages (unless they could show that they were damaged by the late delivery).
Now, if the contract stated clearly that “time is of the essence” and that 123, Inc. MUST deliver Monday, the breach of contract would be more significant, and would more likely be considered a material breach of contract, with damages likely.
Can I sue for Breach?
If a contract breach occurs, either or both parties may want the contract to be enforced in accordance with the terms of the contract, or they can sue for breach of contract and attempt to recover from alleged financial harm resulting from the breach.
If a contractual dispute arises and informal resolution attempts fail, a lawsuit is the next most common step.
Florida Small Claims court is where one would sue if the claim for damages does not exceed $5,000.
An alternative to a breach of contract lawsuit, and court proceedings when an agreement can’t be reached between the parties, is formal mediation. Formal mediation is often written into contracts and can be a prerequisite to court.
Compensation for Breach Of Contract breach-compensation
If a person or business violates a contract, the other party to the contract has the right, in accordance with the law, to relief or remedy. The main recourse for a contract violation are:
- Damages,
- Specific Performance
- Cancellation and Restitution
Breach of Contract Damages
Damages in a breach of contract are typically one of the four types of damages listed below:
- Compensatory damages, where the negatively impacted party is financially compensated so that they essentially “break-even” with what the breach cost them.
- Punitive Damages where the court awards additional compensation to the damaged party as punishment for the breach.
- Nominal Damages occur when the court agrees that there is a breach, but the damaged party is awarded only token damages.
- Liquidated Damages are typically awarded if a specific remedy for breach of contract is detailed in the contract.
Specific Performance
If damages are insufficient as a remedy, the aggrieved party can seek specific performance as an alternative remedy. Specific performance is best described as the court-ordered fulfillment of the contractual duty of the violating party.
Specific Performance is often sought when the contract was for a unique purpose, or rare purpose and monetary damages are simply inadequate. For instance, a contract for the purchase of DaVinci’s Mona Lisa is broken because the seller receives a better offer, and the buyer has a museum showing scheduled. No financial restitution is appropriate, the court can compel the seller to deliver the painting.
Restitution and Cancelation breach-restitution-cancelation
The damaged party may cancel the contracts, and sue for restitution if they have already given some form of benefit (for instance a deposit) to the party that committed the breach.
“Restitution” as a recourse to the contract means the injured party is put back in a position that they were prior to the infringement. Cancellation” nullifies the contract, and all the parties are relieved of the contractual obligation.
Breach of contract can become very complicated, especially when determining damages, or what constitutes restitution. We recommend that you don’t “go it alone” if the money at stake is significant. Rely on the experienced litigators at Florida Business Litigation, a division of Marcadis Singer, PA.
