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What happens after a breach of contract?

What happens when a deal falls through?

If you have a contract obligating the other party to complete the deal, you do have the ability to force the issue along. Depending on the circumstances, you can try the following things:

1. Renegotiate

If the relationship with the other party is worthwhile and this is an aberration, it might be wise to simply renegotiate and pick up where you left off. If you are out any money from their failure to fulfill the earlier terms of the contract, negotiate a credit or a refund.

2. Cancel the contract

If you aren't the person who breached the contract, you can view this as an opportunity to get out of any further obligations. You can cancel the contract and demand restitution of any consideration you already paid. This is particularly useful if you have nothing to lose by ending the contract anyhow.

3. Request specific performance

If you still want the goods or services and it can't be fulfilled by someone else, you can sometimes oblige the breaching party to live up to the deal after all. For example, imagine that you bought an art collection but -- at the last minute -- the owner decides to pull your favorite painting out. The owner wants to simply refund you its value. However, you were only buying the collection to get that exact piece. Specific performance might be an appropriate order.

4. Ask for damages

Damages come in the form of monetary compensation for your the losses you suffered as a result of the broken contract. They come in several forms:

  • Nominal damages -- like $1 -- can be ordered if the judge finds that you aren't really out anything.
  • Compensatory damages are just enough to put you back in the position you were in prior to the breach.
  • Liquidated damages are a set payment written into the contract, based on the actual losses the broken contract caused (like the value of a missed opportunity for you).
  • Punitive damages financially punish someone for breaking a deal. A judge is unlikely to award this unless he or she finds that the other party never really intended to complete the deal in the first place.

It's wisest to avoid business litigation if possible -- but if your hand is forced, it certainly helps to understand your options.

Source: FindLaw, "Breach of Contract and Lawsuits," accessed March 30, 2018

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