Contracts are private matters between parties. Therefore, the courts are not going to become involved in contracts unless there is a problem that has arisen. Generally, this happens when a party has chosen to breach a contract. Breaching a contract is especially wrong because the parties to a contract have voluntarily chosen to be bound by its terms. No one forced the parties to enter into a contract, but once they have made the choice to enter into one, they must fulfill the legal obligations to which they have agreed. This makes logical sense because if one chooses not to fulfill his agreed upon obligations, this action could negatively affect the other parties to the contract who are relying upon the breaching party to fulfill his duties.
In a typical breach of contract action, the party alleging the breach will recite that it performed all of its duties under the contract, whereas the other party failed to perform its duties or obligations. There are consequences to breaching a contract. For instance, a party that breaches a contract may have to pay damages. The purpose of damages is to place the innocent party in the same financial state that they would have been in had the contract actually been performed by the breaching party. For example, if two parties enter into a contract whereby one party agrees to sell his car to the other party for $10,000, and the party that agreed to pay the $10,000 chooses to not fulfill his obligation, in a suit for damages, the party that offered to sell the car for $10,000 would be entitled to at least that amount in damages. In order to receive damages, a party to a contract must show that the other party’s breach resulted in loss for the innocent party. In the previous example, this would be fairly easy to show, especially if the innocent party had initial plans to sell the car to someone else but instead entered into a contract with the breaching party. If the breaching party had not breached the contract, the innocent party could have sold the car to someone else. In contract law, damages are compensatory and not punitive, meaning that damages are not intended to punish the breaching party. As mentioned before, the purpose of damages is to place the innocent party in the same position that he would have been in had the contract actually been performed.
Generally, when a party breaches a contract, the innocent party may be entitled to damages only. In some instances, due to the particular nature of the contract, the only way to remedy the wrong done by the breaching party is to entitle the innocent party to “specific performance.” This means that in some cases damages would not be sufficient to right the wrong done by the breaching party, and instead, he must actually fulfill his obligations under the contract. For example, if two parties entered into a contract for a particular piece of property and one party chose to breach the contract, the court could possibly order specific performance. Most likely, damages would not be adequate in this instance, which is why the court could order specific performance by the breaching party. Specific performance is rare and is only awarded when damages would not be adequate.
In some instances, when there has been a mutual mistake by the parties to the contract, the court will find that there is no contract or they will “undo the contract.” However, that is for a mutual mistake. Often when there has been a unilateral mistake i.e. a mistake by one party to the contract, he will still be bound by the terms of the contract. For example, if a party enters into a written contact with another party in which he agrees to sell his car for $30,000, he cannot later say that he was mistaken and thought that he was going to sell the car for $20,000. The contract reveals that he agreed to sell it for $30,000, not $20,000, so his “mistake” will not allow him to neglect his duties under the contract, and if he chooses to not fulfill his duties he will be in breach of the contract.
Parties can be liable if they breach oral or written contracts, although oral contracts are obviously more difficult to prove. However, under either situation, if a party agrees to particular terms and then neglects to fulfill those terms, he is in breach of the contract.
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