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Contract Breach


A contract breach occurs when a binding agreement or bargained-for exchange exists between two or more parties and one or both parties refuse to meet their obligations. The breaching party may fail to perform the terms of the contract or prevent the other party from performing his or her part. A contract breach may refer to a whole contract or a particular provision of the contract.

Resolving a contract breach

Contracts may contain language stating how contract disputes may be resolved in lieu of formal litigation. These are known as alternative dispute resolution provisions.

If a contract is breached, the nonbreaching party may sue the breaching party for damages. Depending on the amount of damages sought, the nonbreaching party may sue in either small claims court or civil court.

Small claims courts have limited jurisdiction and are designed to handle simple claims of amounts under $10,000. The proceedings are generally informal, and parties represent themselves. The judge reviews the contract and any related evidence and gives an immediate judgment. The ability to appeal a decision in small claims court is limited.

If a claim involves an amount greater than $15,000, the nonbreaching party may choose to go to civil court. Note that this amount varies from jurisdiction to jurisdiction.The proceeding will likely take longer and be more expensive than in small claims court. Parties may represent themselves if they are familiar with the rules and procedures of a trial court. It may be wise to consult a lawyer. Parties may also settle the suit out of court.

Relief for a contract breach

If a breach-of-contract lawsuit is successful, the nonbreaching party may be entitled to the following:

Compensatory damages. May include actual or future money lost to put the breached party in a position as if the breach never occurred.

Nominal damages. A token payment when no actual money is lost.

Liquidated damages. A set amount agreed to in the contract that's paid if something goes wrong.

Punitive damages. Payments meant to punish the breaching party, awarded in very limited cases (e.g., fraud).

Substantial performance. If the contract can still be performed and a monetary award is insufficient, a judge may require the breaching party to perform his or her part of the contract.

If you suffered a contract breach

You must file a lawsuit within a certain amount of time for a contract breach. These deadlines vary by jurisdiction, by type of lawsuit, and by the circumstances of the breach. The statute of limitations for a contract breach of a written contract is between 3 and 10 years. The statute of limitations for an oral contract is generally shorter, between 3 and 6 years. You must file before the deadline or you forfeit your right to sue. Extensions may be granted in limited circumstances.

Additional resources:

All Business: Suing for a Breach of Contract

U.S. Small Business Administration: Plain English Guide to Contracts

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