Consequences of Breaking a Contract

Breaking a contract is a serious matter. It can have far-reaching consequences, including financial losses. If at all possible, it’s essential to try to avoid any breach of contract and work things out amicably first.


What Does Breach of Contract Mean?

When you sign a contract with someone, you are legally agreeing to specific terms. The contract may be signed by two or more parties and is legally binding. When you fail to comply with the terms of the agreement in a “substantial” way, you may be considered in breach of contract and according to business litigation rules, the other parties may sue you.


Legal Consequences of Breaking a Contract

You may be held liable for monetary damages if you breach a contract. There are three different types of monetary damages: expected damages, reliance damages, and restitution damages. Collectively these are known as “compensatory damages.”


Monetary Damages

Expected damages pay the harmed party bringing them up to the level they would be if the breach hadn’t happened. Reliance damages pay them for expenses they incurred while fulfilling their end of the bargain. Finally, restitution pays the harmed party for any benefits the breaching individual enjoyed by breaking the contract. 

Additionally, if you breach a contract, you may also be subject to incidental, consequential, and punitive damages. 


Equitable Consequences

The court may also order you to do something or refrain from doing something as part of resolving the contract breach. 


Damage Limitation

During the contract process, all parties may agree to limit the damages and evaluate how risks will be dealt with. If a contract breach occurs, check the original agreement for any limitations. The court may also impose limitations during a lawsuit.


Sell Items

The judge may force the losing party to sell goods to compensate for the breach of contract. An example may be a building or piece of property that was purchased as part of the deal. In the event of a breach, the owner may be forced to sell it to free up financial assets to pay damages to the other parties. 


Reputation Damage

Breaking a legal contract can ruin your reputation, and it could be difficult to regain respect with business associates and peers. Business owners especially have a lot to lose.


Personal Consequences

Dealing with a lawsuit can be stressful and affect your personal life, health, and family. Therefore, never sign a contract that you do not intend to fulfill. 


Where to Turn for Help

Contact business litigation attorneys, Haber Law today if you need help drafting a contract with ample provisions for breaches or if you are dealing with a contract dispute. We are complex business litigation experts and want to help you resolve your issue.