Planning for a Breach of Contract

planning for breach picWhen you are negotiating and drafting a new contract, you don’t want to think about it being breached. However, with preplanning and strategy, you can plan for a breach of contract in a way that minimizes the damage that results.

A “breach” of an agreement occurs when one of the parties fails to properly or timely perform its duties and obligations under the contract. If a breach should occur, your contract should detail what type of liability the breaching party has as well as the type of damages the non-breaching party can recover.

There are three primary types of contract damages that can be recovered by the non-breaching party. The idea behind an award of damages is to make the injured party whole. As a result, many contracts allow for the combination of damages. The main types of contractual damages are:

  • Compensatory. The non-breaching party can recover payment for the actual damages incurred. In other words, the injured party is paid the full amount for its direct loss.
  • Incidental. In order to make the non-breaching party whole, certain costs that were incurred by the injured party as a result of the breach of contract should be paid by the breaching party. Incidental damages must be reasonably related to the actual damages incurred by the injured party.
  • Special. Damage can be caused to the non-breaching party as a consequence of the breach. In other words, the injury may not flow directly from the breach, but as a natural consequence of it. This type of damage is also commonly referred to as “consequential damages.”

Before you sign a contract, you should confer with a business attorney for advice on how to limit your liability under the contract. Failure to do so could leave you liable for all three of the different types of damages listed above if you breach the contract. We can review the agreement and ensure that your potential liability is minimized as much as possible.

Contact us today to schedule your initial consultation. The attorneys at The Swenson Law Firm provide a variety of business law services to entities of all sizes.

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