What Defines a Breach of Contract - Contracts 101

No matter how good both parties intentions are when entering into a legal agreement, unforeseen circumstances can throw things off track. If this prevents one of the parties from fulfilling his end of the deal, it may be considered a breach of contract.

Legal obligations are created in a business contract, and they must be fulfilled by the both parties. Depending on the specific terms of the contract, a breach may occur when one party fails to perform on time, does not perform in accordance with the agreement's terms, or does not perform at all. Usually, a breach of contract will be categorized as either "material" or "immaterial" in order to decide the appropriate "remedy" or legal solution.

Generally, both oral and written contracts are legally enforceable, so caution should be taken in entering into handshake agreements. It's always wise to make sure your agreements are in writing to ensure that the contract terms and details are not remembered differently, or even forgotten.

A breach of contract is defined as a failure to fulfill the duties under the agreed upon terms. A contract can be breached if:

- One party does not perform as promised
- One party does something making it impossible for the other one to perform the duties of the contract
- One party makes it clear that he or she will not perform the contract's duties

When one or both parties breach a contract, the other party is entitled to various types of remedies. Here are most common remedies sought:

Consequential Damages

The breaching party pays the non-breaching party an amount that brings that party back to the same position they would have been in if the contract was performed.

Punitive Damages

The breaching party makes a payment to the other party as punishment for breaching the contract.

Liquidated Damages

This type of damages is agreed upon as part of the contract itself, before signing. It stipulates that if one party breaches the contract, that party must pay a specified amount.

Nominal damages

This minimal amount is provided in the event that the non-breaching party wins the case but suffers only minimal financial losses.

Other remedies for breach of contract may include:

Specific performance

In some circumstances, a court can require the breaching party to perform their duties as agreed upon in the contract.

Rescission

Either party is required to perform the contrac's obligations, as if there were no agreement signed. If one party has performed some of his duties, the court tries to bring that party back to the same position he or she was in before the contract.

The statute of limitations on filing a breach of contract lawsuit varies by state. If a party does not file within the state's specified time limit, he or she loses the ability to seek damages through a breach of contract lawsuit.

It's impossible to completely lay out all the circumstances that may arise in the course of doing business. In some cases, it may even be necessary for compelling business reasons to breach a contract effectively written contracts can provide valuable guidance and predictability to the parties and, if necessary, to the courts in determining where they stand.