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What Happens When a Contract is Breached?

A breach of contract occurs when one of the parties fails to meet one or more of their obligations stipulated in the contract. If this failure results in damages to the other party, this party will likely want to take action to mitigate and recover the damage. Here are some of the methods to address a contract breach:

Notice and Communication – the non-breaching party should notify the breaching party as soon as they are aware of the breach. This will give the breaching party to report or to rectify the issue. The non-breaching party may issue a demand for performance within a specific time period.

Negotiation – If the breaching party is unable or unwilling to perform as specified in the original contract, negotiation may be required to satisfy both parties. Negotiation may be acceptable if the contract term(s) relating to the breach was unclear or an unanticipated situation occurred.

Mediation – conflict may affect the contract parties' ability to view and discuss the issues objectively or productively. A neutral mediator may be used to help the parties navigate discussions to an acceptable outcome.

Arbitration – a third-party arbitrator may be used when the parties cannot come to an agreement. Unlike a mediator, an arbitrator will make a binding decision based on the facts provided and the rule of law.

Legal Action – Litigation is the most expensive option when a breach of contract occurs and at least one of the previous options is usually attempted before legal action is taken. With legal action, a lawsuit is filed and determined in the court of law of the applicable jurisdiction.

It's important to note that the escalation process can vary depending on the specific circumstances, the jurisdiction, and the terms outlined in the contract. A legal professional should be consulted to understand the appropriate steps to take in a breach of contract situation.

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