Recently, a cooler company in Boulder partnered with a logistics firm in Louisville to facilitate and oversee their product manufacturing in China. However, the partner failed to provide the manufacturing services they promised. The cooler company then sued and allegedly received some $32,000 in compensation.
The above example illustrates two concepts known in the legal community as “breach of contract” and “remedy”. Today we’ll examine the meaning and implications of these terms.
Breach of contract
A breach of contract occurs when one party in a business agreement fails to fulfill part or all of their obligations outlined in the contract. There are a number of scenarios that could constitute a breach of contract, for instance if one party in the business agreement:
- Neglects to perform the tasks of the contract
- Neglects to perform the tasks in line with the specified conditions of the contract
- Neglects to perform the tasks on time
When a breach of contract occurs, the injured party has the right to sue for any harm incurred. This type of compensation is called a “remedy”. Generally, remedies for breach of contract fall under three categories:
- Damages: This refers to payment in some form. The damage could be:
- Compensatory: Suppose the breach of contract had not happened. What positive outcome could have been reasonably expected for the injured party? The offending party must then pay to compensate for these missed opportunities.
- Punitive: If the breach was especially severe, the offending party may have to pay additional damages as punishment—over and above what is compensatory.
- Nominal: In cases where it could not be proven that the breach caused any real loss in money, the offending party may be asked to pay a very small token amount of money in damages.
- Liquidated: This type of damage is valued at the time the contract is drawn up. It is an estimate of actual damages that would be caused if a breach of contract were to occur.
- Specific performance: In the event that damages would not be a sufficient remedy, the court may order the offending party to perform the duties outlined in the contract. This type of remedy is often used in unique cases, where the amount of damages is unclear or where the dispute is not merely over money.
- Cancellation or restitution: Restitution requires the offending party to pay the injured party back for any payments or benefits that had already been made. Cancellation voids the contract, which relieves both parties of any responsibility under it.
It’s important to understand the protections a contract gives you and the kinds of remedies you’re entitled to if your contract is breached.