When a party violates a commercial agreement, what remedies and options does the other party have to seek relief for its losses? Here’s an overview of some of the options your organization might have.
Understanding Breaches of Contract
A breach of contract occurs when a party fails to fulfill one or more of their contractual obligations. Contractual breaches may involve minor or material breaches. A minor breach involves a violation of a contractual condition that does not frustrate the contract’s essential purpose. When a minor breach occurs, the non-breaching party must continue performing their contractual obligations but may sue the breaching party for losses caused by the breach. A material breach frustrates the essential purpose of the contract and allows the non-breaching party to cease performing under the contract and sue for their losses.
Common examples of breaches of commercial contracts include:
- Failure to deliver goods
- Failure to perform agreed-upon services
- Delivery of non-conforming goods or services
- Failure to pay
- Violations of contractual representations and warranties
- Violations of restrictive covenants, such as non-disclosure or confidentiality provisions.
Legal Remedies for Breach of Contract
A non-breaching party may pursue various legal remedies following the breach of a commercial agreement, such as:
- Compensatory Damages – A non-breaching party may seek compensation for monetary losses sustained due to a contractual breach, such as lost profits, extra expenses incurred to remedy the breach, or damage to customer relations and goodwill.
- Liquidated Damages – Parties may include a contractual provision for liquidated damages, in which they agree to a specific amount of compensation for a breach of contract claims. Courts enforce liquidated damages clauses when calculating compensatory damages would prove too challenging or impossible.
- Rescission or Restitution – Courts may order rescission or restitution as relief for a breach of commercial contract claim. This terminates the contract and returns the parties to their pre-contract position.
- Disgorgement – Under certain circumstances, a party may pursue a claim for disgorgement, which requires a breaching party to surrender ill-gotten revenue or profits gained through a wrongful or intentional breach of contract.
- Injunctions – A party may seek injunctive relief to bar a breaching party from taking or continuing specific actions, such as violating confidentiality provisions in the parties’ contract.
- Specific Performance – In rare cases, a court may order specific performance, which requires a breaching party to perform the contractual obligations they violated. Courts can grant specific performance in cases where financial compensation cannot make a non-breaching party whole, or the parties’ agreement involves unique or irreplaceable goods or services.
Best Practices for Handling a Breach of Contract
When a breach of contract dispute arises, best practices to follow to protect your company’s interests include:
- Review the contract to confirm the contractual terms, the parties’ respective obligations, and dispute resolution provisions.
- Attempt to resolve the dispute amicably to avoid the time and expense of litigation.
- Keep records of all correspondence and losses.
- Seek help from an experienced commercial litigation attorney.
Contact a Commercial Law Attorney Today
When you find yourself in a breach of commercial contract dispute, a knowledgeable commercial litigation attorney can help you understand your legal options and the actions you can take to protect your company’s interest. Contact August Law today for an initial consultation with our legal team to learn more about navigating commercial contract breaches.