When someone breaches a contract, it can be frustrating and costly. However, understanding your legal options empowers you to respond effectively and protect your interests. Not every breach requires litigation—there are multiple approaches to resolving contract disputes, and the best strategy depends on the severity of the breach and the value of the ongoing relationship.
First, determine the type of breach. A material breach is a significant failure that goes to the heart of the contract, essentially destroying its value. A minor or partial breach is a less significant failure that doesn't undermine the contract's fundamental purpose. The distinction matters because material breaches typically allow the non-breaching party to terminate the contract and seek full damages, while minor breaches generally only entitle you to damages for the specific deficiency.
Before taking formal action, consider sending a demand letter or breach notice. This formal communication puts the breaching party on notice, documents your claim, and often triggers cure periods specified in the contract. A well-crafted demand letter should describe the specific breach, reference the relevant contract provisions, specify the remedy you're seeking, and set a reasonable deadline for response.
Negotiation and informal resolution should be your first approach in most cases. Direct communication with the breaching party may reveal that the breach was unintentional or that they're willing to cure it. Maintaining a professional and solution-oriented approach often leads to faster and less expensive resolution than formal legal proceedings.
If informal resolution fails, consider alternative dispute resolution (ADR) methods like mediation or arbitration. Many contracts include mandatory ADR clauses that must be followed before litigation. Mediation involves a neutral third party helping both sides reach an agreement, while arbitration involves a neutral party making a binding decision. Both are typically faster and less expensive than going to court.
Legal remedies for breach of contract include compensatory damages (money to cover your actual losses), consequential damages (losses that result from the breach), specific performance (a court order requiring the breaching party to fulfill their obligations), and rescission (canceling the contract and returning both parties to their pre-contract positions). The available remedies depend on the contract terms and applicable law.
When calculating damages, you're generally entitled to be put in the position you would have been in had the contract been performed. This includes the cost of obtaining substitute performance, lost profits directly caused by the breach, and incidental costs incurred because of the breach. However, you also have a duty to mitigate—meaning you must take reasonable steps to minimize your losses.
Keep detailed records of everything related to the breach: the original contract, all communications, evidence of the breach, documentation of your losses, and steps taken to mitigate damages. This documentation will be invaluable whether you're negotiating a settlement, participating in mediation, or pursuing litigation.
