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What are my options when a contract is breached?

On Behalf of | Oct 13, 2023 | Commercial Law, Commercial Litigation, Contract Review

Breach of contract is one of the most common claims in commercial litigation. A contract is a promise or set of promises that are binding through Ohio or federal law. Although most of your business contracts are likely in writing, verbal contracts can also be legally binding in certain situations.

You should generally not rely on verbal contracts, due to the uncertainty of knowing if they are legally enforceable. Your contracts should be in writing, detailed, dated and signed by both parties.

When the other party fails to fulfill their obligations under the contract, they have breached the contract. A breach of contract can also occur when the other party does something that makes it impossible for you to fulfil your part of the contract.

Address the problem

If you find yourself in a situation involving breach of contract, you have various options. Before filing a lawsuit and heading into court, communicate directly with the other party and find out the reason for the breach.

Act polite and treat them with respect. Do not assume that they are breaching the contract simply because they do not want to perform their part. Perhaps circumstances that were out of their control prevented them from doing their part. Talk with them and see if there is another way to achieve the goals of the contract.

Alternative dispute resolution

If this fails, consider using alternative dispute resolution, such as mediation or arbitration, to resolve the dispute. Many contracts contain a mandatory arbitration clause, requiring everyone to participate in arbitration to try to find a solution before bringing the lawsuit to court.

Your contract does not need to contain that clause for you to participate in arbitration or mediation and there are many benefits to trying it. It is generally less expensive and quicker than litigation and increases your chance of reaching an amicable resolution that preserves your business relationship.

Despite your best efforts, sometimes you cannot resolve a dispute, leaving traditional litigation as your only option. A court can order the other party to fulfil their obligations under the contract or if that cannot be done, order that you receive compensation for your damages.

The form or amount of compensation will vary based on factors such as the terms of the contract and the industry you are in.

Forms of compensation

Common forms of compensation include consequential damages, which cover foreseeable losses from the breach and compensatory damages, which reimburse you for the amount you lost because of the breach.

Other types of potential compensation include liquidated damages, attorney fees and court costs. Punitive damages are compensation given simply to penalize the party who breached the contract but they are rarely awarded in breach of contract cases.

In lieu of or in addition to compensation, a court may order the contract be rescinded, which means cancelled. Alternatively, the court could order the contract be reformed, which means the terms are changed to produce the best outcome for everyone, based on the current situation.

A breach of contract can seriously disrupt your business. When you are dealing with a breach of contract situation, it is best to talk with someone about the situation and learn your best options for resolution.