What Can Happen After A Contract Is Breached?
In modern law, a contract is an agreement between two parties where certain benefits normally accrue to both sides. The contract is most often in written form and in order for the contract to be legal, some form of consideration must be present in the contract. The consideration is anything of value that is promised, or actually paid under the terms of the agreement.
The purpose of contracts is to nail down the precise terms of a transaction either for a one time purpose, or for ongoing purposes. The fact that each party to the contract has agreed to the contract, consideration has been given, and each party has signed the contract is proof enough to the courts that a contract existed.
When one of the parties does not live up to the terms of the contract as originally agreed to, then there is a breach of the contract. The failure of one party to fulfil their end of the contract is when other steps sometimes need to be taken, to either remedy the breach or seek redress in a court of law.
In the real world, circumstances occur that can affect a contract and it execution that sometimes cannot be helped. Economic and financial conditions, family situations, illness and deaths, all can materially affect a party’s ability to continue with a contractual arrangement.
Usually when a breach occurs, the party that did not cause the breach will attempt to recover its interests from the party who caused the breach. This is normally done through the courts, although not always. If the breach is due to financial reasons, and most of the situations are, then it may be impossible to recover the full amount of money, otherwise why would the party have failed to execute that portion of the contract?
Usually, the first step will be to attempt to come to some sort of agreement on an informal basis, where there might be a way to work out some kind of agreement in lieu of the original contract. Situations may have changed, cash flow may have been curtailed, market shares may have diminished, so that conditions are entirely different from when the original contract was executed.
Sometimes if the financial amounts in question are small enough, the situation can be settled between the two lawyers. Other times it might go to the small claims court. If the dollar amount that is in question is below a certain amount of money, that can be an expeditious and inexpensive way to settle things.
In many court systems today there are also arbitration procedures where two parties can sit down with an arbitrator, and make an attempt to come together in an agreement. The arbitrator is trained in the law, and may even be a lawyer, but nevertheless this person will be appointed by the court to carry out the arbitration procedure as far as possible in an attempt to come to some sort of agreement.
If informal attempts fail, then the only remedy for the non-breaching party to the contract is to go to court and seek remedy there. No matter what type of agreement eventually occurs, whether it be by informal means, arbitration, or by the more formal lawsuit method, the party that did not breach the contract will be entitled to some form of remedy under the law.
The primary remedies fall under the categories of damages, specific performance, or cancellation and restitution. The most common form is damages, where the non-breaching party receives some sort of financial award to compensate for the loss of revenue under the original contract. The other remedies really depend on the ability of the breaching party to perform, except for cancellation, where the contract is voided, which is very rare, unless the contract was faulty in the first place.
If you or your business is in a contract dispute with another party, then your first step should be to consult your contract lawyer. Auckland has a number of law firms, both large and small. If you would rather consult a medium-size law firm in Auckland about a contract dispute, McVeagh Fleming & Co could be right for you. They have a number of contract dispute lawyers in Auckland and also in Albany who have plenty of experience in these issues.