By Ronnie Farhat, Esq.
In a perfect world, all contracts we enter into would go accordingly to plan. Unfortunately, the world isn’t perfect and breaches happen. Whether you are dealing with a contract issue as an individual or as a business, it is important to have a basic understanding of what tends to happen when a contract is breached and what the potential remedies might be for you and your business in such a circumstance. As an Illinois contract lawyer, I will share the basics of breaches of contracts.
What is a breach of contract?
A breach of contract occurs when a party to a contract fails to perform one of their contractual obligations or a provision of the contract itself is otherwise violated. Breaches come in many different types; they can occur intentionally or unintentionally, be minor or major (i.e. material), actual or anticipatory.
*Before going any further, it is important to note that every contract is different. If you believe you or another party to a contract you entered into may have violated its terms, you should find a contract review attorney as quickly as possible to determine what your next steps should be.
What type of breach are we dealing with?
When a lawyer is confronted with a potential breach of contract issue from a client, the first thing they will want to do is review the contract in its entirety to become familiar with its terms. After a contract review has been completed, the attorney can determine what kind of breach you might be dealing with and then advise accordingly. The differences between a “material” breach and a “minor breach” are particularly important to understand. While a material breach impacts the heart of the contract’s purpose and prevents it from being fulfilled, a minor breach might be just a technicality or a minor violation of the contract’s terms that does not preclude its general purpose. While these are just some of many examples, knowing the type of breach you are dealing with is important because it will impact how the non-breaching party should proceed and the options that the non-breaching party will have going forward.
Is the contract even enforceable?
The enforceability of the contract or the specific provision at issue in the business dispute is also something your attorney will likely need to consider. While contract law usually allows parties to agree to contract terms freely, there are certain things that the law does not allow in a contract. If part of a contract is determined to be unenforceable by a court, the bottom line is that part of the contract is not really legally binding. Courts can deem entire contracts to be unenforceable, effectively making them null and void, though such scenarios are pretty rare. More often, courts will strike unenforceable provisions from contracts, allowing for the rest of the agreement to remain in place. Whether a court is likely to hold your contract or the provisions you believe were breached to be enforceable or not could have a large impact on whether it is worth taking legal action over a business dispute.
What options do I have?
Finally, your potential remedies in the event of a breach will depend on what the contract actually says, as well as the factual circumstances of your business dispute and the application of all relevant law. Contracts often include provisions in them that enumerate what the remedies will be in the event of a breach. While these provisions may or may not be actually enforced by a court as we described above, they are typically the best starting point towards understanding your legal options. Arbitration clauses, cure periods, and many other forms of such provisions may play a role in whether a potential breach is actionable.
If a breach has not actually occurred yet but you have been notified that the other party intends to breach soon, sending a letter warning them of the consequences should they continue may be a good first measure. If that does not work and a breach does occur that warrants further action to be taken, more than likely a lawsuit will need to be filed to address the issue further.
Monetary Damages vs. Specific Performance
Assuming the non-breaching party was actually harmed as a result of the breach, typically the default remedy for breaches of contract in court will be monetary compensation. More specifically, the breaching party will have to pay the non-breaching party the amount required to bring them to state they would have been in had the breach not occurred. There may be specific damages provisions in the contract that levy penalties on the breaching party beyond actual damages as well. Regardless, the court will have to determine the extent of such damages and rule accordingly.
Instead of monetary damages, the non-breaching party could seek a court order requiring the other party to continue with their performance under the contract, which is legally referred to as a request for “specific performance.” If another party can be convinced to perform under the contract during negotiations in this manner, great. However, if the matter is taken to court, judges are often reluctant to force parties to engage with one another in such circumstances if money damages would suffice. Exceptions to this general rule are entertained in situations where what is being promised under the contract is especially unique or something that could otherwise be adequately replaced via money. In most contract breach situations however, you likely be seeking monetary damages.
This was just a very basic overview of what the process might look like should you or your business be presented with a potential breach of contract issue. The potential issues that might arise in a breach of contract situation can be complicated and varied, so as stated earlier, it is always best to get a business dispute lawyer or contract review lawyer involved as soon as possible