A contract is a common tool used in the business world. Once signed, it is a legally binding agreement which determines the roles and responsibilities of all parties involved. Contracts can have a variety of different purposes. Some common types of contracts include those determining the sale of specific goods and services between a buyer and seller or an employment contract between a new employee and her employer. Contracts are usually created through a process of negotiation and discussion between all parties involved. When the terms and conditions of the arrangement cannot be agreed upon, one or more of the parties involved may choose not to sign the contract.

What is a Breach of Contract?

A breach of contract is a legal term used to describe what happens when one party doesn’t do what they agreed to do in a contract – essentially, it occurs when someone breaks a promise. The contract doesn’t have to be written; in some cases, it may be an oral contract agreed upon by two parties. Examples include not finishing the work agreed upon, failure to pay for goods or services, failure to deliver goods or services, or delivering goods and services that are somehow different from those specified in the contract. The breaching party only has to fail to follow through on the terms and the conditions of the contract once for it the contract to be considered broken. However, in some cases, one party breaks the contract many times. A breach of contract is called an anticipatory breach when one party specifies that they will not adhere to the terms in the contract.

What Happens When a Contract is Breached?

When a contract is breached, the agreement is no longer considered valid. The party who did not break the terms is not required to fulfill any further obligations according to the contract at this point. Damages in the form of monetary payment may be awarded to the non-breaching party as compensation. If the matter is settled in court, the goal is not to punish the party who has breached the terms of the contract, but to put both parties in the same position they would have been in had the contract been fulfilled instead of broken. For instance, imagine you hire and pay someone to mow your lawn for $20 and the person is unable to do it. This represents a breach of contract, even if the agreement wasn’t made in writing. If you then search around and find that the cheapest lawn mowing service you can find is $40, the original person hired will have to pay you $40 in compensatory damages so that you can have your lawn mowed as you originally intended.

Potential Solutions

The most common solution for a breach of contract involves monetary compensation, which are paid by the person who broke the rules of the contract. In some cases, though, money is not seen as sufficient compensation. When this is the case, other solutions may be found by the court according to what the judge deems fair. This may involve forcing one party to provide the services or goods promised in the contract. Some contracts may also specify other penalties for breaking the terms of the contract.

Quick Summary

A breach of contract occurs when a promise between two parties to exchange goods or services is broken. When this happens, most often compensatory damages are awarded to the non-breaching party so that he or she may obtain the goods or services promised in the contract.