diff --git a/contractcourt/commit_sweep_resolver_test.go b/contractcourt/commit_sweep_resolver_test.go
index 279cc6e8..da1fca11 100644
--- a/contractcourt/commit_sweep_resolver_test.go
+++ b/contractcourt/commit_sweep_resolver_test.go
@@ -96,6 +96,7 @@ func (i *commitSweepResolverTestContext) waitForResult() {
 type mockSweeper struct {
 	sweptInputs   chan input.Input
 	updatedInputs chan wire.OutPoint
+	sweepErr      error
 }
 
 func newMockSweeper() *mockSweeper {
@@ -112,7 +113,8 @@ func (s *mockSweeper) SweepInput(input input.Input, params sweep.Params) (
 
 	result := make(chan sweep.Result, 1)
 	result <- sweep.Result{
-		Tx: &wire.MsgTx{},
+		Tx:  &wire.MsgTx{},
+		Err: s.sweepErr,
 	}
 	return result, nil
 }
@@ -244,3 +246,92 @@ func TestCommitSweepResolverDelay(t *testing.T) {
 		t.Fatal("unexpected resolver report")
 	}
 }
+
+// TestCommitSweepResolverLocalBreach tests resolution when the local node
+// publishes a breached output (one that is swept by the remote party).
+func TestCommitSweepResolverLocalBreach(t *testing.T) {
+	t.Parallel()
+	defer timeout(t)()
+
+	amt := int64(100)
+	outpoint := wire.OutPoint{
+		Index: 5,
+	}
+	res := lnwallet.CommitOutputResolution{
+		SelfOutputSignDesc: input.SignDescriptor{
+			Output: &wire.TxOut{
+				Value: amt,
+			},
+			WitnessScript: []byte{0},
+		},
+		MaturityDelay: 3,
+		SelfOutPoint:  outpoint,
+	}
+
+	ctx := newCommitSweepResolverTestContext(t, &res)
+
+	// Setup the sweeper so that it returns an error of the output being
+	// already swept.
+	ctx.sweeper.sweepErr = sweep.ErrRemoteSpend
+
+	report := ctx.resolver.report()
+	expectedReport := ContractReport{
+		Outpoint:     outpoint,
+		Type:         ReportOutputUnencumbered,
+		Amount:       btcutil.Amount(amt),
+		LimboBalance: btcutil.Amount(amt),
+	}
+	if *report != expectedReport {
+		t.Fatalf("unexpected resolver report. want=%v got=%v",
+			expectedReport, report)
+	}
+
+	ctx.resolve()
+
+	ctx.notifier.confChan <- &chainntnfs.TxConfirmation{
+		BlockHeight: testInitialBlockHeight - 1,
+	}
+
+	// Allow resolver to process confirmation.
+	time.Sleep(100 * time.Millisecond)
+
+	// Expect report to be updated.
+	report = ctx.resolver.report()
+	if report.MaturityHeight != testInitialBlockHeight+2 {
+		t.Fatal("report maturity height incorrect")
+	}
+
+	// Notify initial block height. The csv lock is still in effect, so we
+	// don't expect any sweep to happen yet.
+	ctx.notifyEpoch(testInitialBlockHeight)
+
+	select {
+	case <-ctx.sweeper.sweptInputs:
+		t.Fatal("no sweep expected")
+	case <-time.After(100 * time.Millisecond):
+	}
+
+	// A new block arrives. The commit tx confirmed at height -1 and the csv
+	// is 3, so a spend will be valid in the first block after height +1.
+	ctx.notifyEpoch(testInitialBlockHeight + 1)
+
+	<-ctx.sweeper.sweptInputs
+
+	ctx.waitForResult()
+
+	report = ctx.resolver.report()
+	expectedReport = ContractReport{
+		Outpoint:       outpoint,
+		Type:           ReportOutputUnencumbered,
+		Amount:         btcutil.Amount(amt),
+		MaturityHeight: testInitialBlockHeight + 2,
+
+		// RecoveredBalance is zero due to the output having been swept
+		// by the remote party.
+		RecoveredBalance: 0,
+	}
+	if *report != expectedReport {
+		t.Fatalf("unexpected resolver report. want=%v got=%v",
+			expectedReport, report)
+	}
+}