In the United States, the consequences of breach of contract and the time period available to initiate legal action can vary between the states.
The obvious consequence of breaching a contract you had with your business partner, service provider and the like is that the injured business party can and will sue you – the breaching party— for any remedy available under contract and state law.
Contract law is in general governed by the common law of each state, but overall contract law applies similarly throughout the United States. However, there are specific court interpretations regarding contract law that can vary between the states. This article discusses what are the general consequences of breach of contract without addressing differences between states and the application of statute of limitations.
The time period available to bring a lawsuit for breach of contract, commonly known as statute of limitations, differs between states. The statute of limitation refers to the period in which a plaintiff can start a lawsuit against a potential defendant. In this respect, some states may allow only 2 years to start an action for breach of contract while others can allow for 3 years or more to bring the same claims.
For example, according to Florida law in 2019, in Florida most breach of contract claims have a statute of limitations of 5 years. This means that a person, individual or business entity, can file a claim for breach of contract within 5 years after the breached occurred. If the person files the lawsuit 5 years and one day after the breach occurred, then the opposing party can raise a statute of limitation defense and have the suit dismiss. In other words, the opposing party can have the case dismissed because too much time has passed since the breach occurred and therefore the injured party may not be able to recover any damages. However, the state law recognizes that not all contracts are equal (there are installment contracts, real estate contracts, lump-sum or fixed price contracts, etc) and as a result, the statute of limitations applies differently to each contract.
The consequences of breach of contract depends on the terms of the contract, the type of contract and the specific state contract law that applies. Without giving consideration to any differences between state laws or various types of contracts, the general consequences of breach of contract include:
- Monetary damages. The main remedy for breach of contract is an award of damages. Damages awarded in breach of contract cases can include punitive damages, compensatory damages, and liquidated damages. In Florida, in order to recover damages for breach of contract, the injured party must prove that (1) plaintiff and defended entered into a contract, (2) a material breach of contract was caused by defendant and (3) damages.
- Specific performance. As a remedy, specific performance is used when an award of monetary damages is not adequate to compensate the injured party. With specific performance, the breaching party must perform the duties specified in the contract. This remedy is usually available in contracts for real estate or involving valuable items that cannot be replaced or monetary damages fails to compensate the injured party.
- Restitution. The principle of restitution provides that the breaching party must give back any money or property received from the injured party under the contract.
- Rescission. Rescission refers to an annulment of the contract by a court and is generally used in cases involving mistake, fraud, duress and undue influence
- Reformation. In the case of reformation, a court steps in and rewrites a contract to correct any inequalities.
The consequences and remedies available for breach of contract can be complex, especially when the contract involves parties from different jurisdictions, or it is an international contract for the sale of goods.
Malescu Law P.A. – Business Lawyers