When a party does not fulfill the promise made in a valid, enforceable contract at the time such fulfillment, or "performance," is due, the contract has been "breached." At this point legal remedy may be sought. (Legal remedy may be sought even before this time, if a party has indicated it will not honor its previously agreed upon promise.) Most commonly, some form of monetary compensation is sought for a breach of contract. In some cases, the contract may have stipulated the maximum amount of money recoverable in the event of breach. Specialized laws regulate damages for many types of contracts, such as sales of goods, real estate transactions, and employment contracts.

The most common form of compensation sought for a breach of contract is "compensatory damages," which is an estimation of the loss incurred or the gain prevented, by the other party's failure to honor the contract. Thus compensatory damages may include the projected loss of profits by a business due to a breach of contract even if such a stipulation was not included in the original contract. "Punitive damages," which are intended to punish the party who has breached the contract rather than merely to compensate the aggrieved party, traditionally are not considered part of contract law. Punitive damages are usually awarded in situations involving illegal conduct. In some cases "specific performance" may be sought, which means that the specific promise of the contract must be fulfilled. This usually occurs in the instance of a contract for the sale of some unique commodity or service, rather than a replaceable item. The most common example of a "specific performance" case is land. Land is considered unique for obvious reasons, but other items such as rare or unusual antiques or artwork, might also be sought in a specific performance suit.

There are a number of valid defenses to a claim of breach of contract. As mentioned above, contracts involving minors are open to subsequent invalidation. "Mutual mistake" occurs when both parties to a contract have made an erroneous assumption about something material to the contract such as the condition of a piece of equipment or the size of a parcel of land. Contracts made under "duress," that is, under threat of force or some other consequence, may be subsequently voided. A contract may also be voided if a party has entered it under "undue influence." For example, if someone is given alcohol until his or her judgment is impaired, then enters into a contract, the contract may be justifiably voided.

A party may cite "unconscionability" to defend a breach of contract if the contract in question is so unjust that no reasonable person would have agreed to its conditions had he or she clearly understood its provisions. (This often occurs in contracts containing fine print or contracts that are laden with unintelligible jargon). "Misrepresentation" is also grounds for justifiable breach of contract. For example, when a certain material provision of a contract misleads one of the parties, such as claiming an automobile is in good condition when it is not, is a valid defense for breach of contract. However, a person who enters a contract is responsible for reading all of its terms and raising questions before signing it. Lastly, a party may cite "impossibility" to justify a breach of contract if intervening events have made it impossible to fulfill the contract.