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Understanding a breach of contract and its remedies

Some California business owners may need a quick explanation of what a breach of contract is and how to resolve one. A breach of contract occurs when a party who has entered into a contractual agreement fails to fulfill one or more of the terms in the agreement. Suppose two parties enter into an agreement to manufacture a product, each party agreeing to provide specific parts by certain dates. The failure of one party to provide parts by the date specified would be a breach of contract.

Contract breaches are usually categorized as material or immaterial, which relates to the amount of impact the breach has on the other party. In the hypothetical scenario, if parts delivered late do not delay manufacture of the product, then no harm has been done and the breach is immaterial. However, if late parts cause the other party a delay in manufacturing, which subsequently results in damages, then the second party has been harmed and the breach is considered to be material.

When a breach occurs, typical attempts to resolve it include mediation or arbitration. However, in some cases, the injured party might file a lawsuit seeking compensation for damages. Damages are generally classified as compensatory or punitive, although other classifications exist. Compensatory damages are designed to compensate the offended party for any losses they may have incurred. In other words, compensatory damages make a damaged party "whole." Punitive damages, on the other hand, are designed to punish a party for their wrongful acts.

In attempting to write contracts and agreements that meet the standards of the law and are clearly enforceable, businesses may find it beneficial to use the services of an attorney with experience in that area. An attorney might also be helpful in resolving a breach of contract or filing a relevant lawsuit.

Source: Findlaw, ""Breach of Contract" and Lawsuits", July 31, 2014

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