You’ve entered into a contract, but the other party hasn’t carried through on their promises. Failing to comply with the terms of a valid agreement is called “breach of contract.” Contract breaches may be resolved through negotiation, alternative dispute resolution or courtroom litigation.
As we’ve discussed before on this blog, not every contract is enforceable. However, the purposes of this post, we’ll assume that the contract is valid and not voidable.
Assume for the moment that you are a remodeler and agreed to update a customer’s kitchen. You’ve completed the project, but now the customer won’t pay the remainder on their bill. They claim they needed the project completed before their daughter’s wedding, and the contract stated that “time is of the essence,” but you were unable to complete the project before the required date.
Under the terms of the agreement, you received half the payment when the project was half-done. That first payment does not fully cover your costs. Can the customer legally keep the remaining money because of the breach?
No. The remedy in this type of breach is for the breaching party (you) to pay damages, not forfeit half the contract’s value. If you in fact failed to meet the deadline in a contract where time was of the essence, you committed a material breach. A court would attempt to place a dollar value on that breach, in an effort to put the non-breaching party (the customer) in the position they would have been had the contract been fulfilled on time.
You might end up paying for some of the expenses involved in hosting the wedding somewhere else, if that was truly necessary. However, only damages that are reasonably related to the breach are allowed.
What other remedies are available?
In some cases, the parties know in advance that it would be difficult to determine the actual damages caused by a breach, so they decide on a reasonable estimate and include that in the contract. These are called liquidated damages.
When a party behaves especially wrongfully, the court may order punitive damages, which are meant to punish wrongdoing.
When damages are inadequate because the subject matter of the contract is rare or unusual, a court of law may order specific performance, which means ordering the breaching party to perform their contract duties.
In some situations, the contract can be canceled altogether by the non-breaching party, but only if the breaching party has not spent money in reliance on the contract. In others, the non-breaching party can request restitution, which essentially puts it back in the position it was in before the breach occurred.