Breach of Contract
Before entering into a contract, it is very important to be clear about and fully understand each provision. Written contracts are always preferable to oral agreements because you can read the terms agreed upon and the writings memorialize the agreement, thereby minimizing “he said she said disputes” later. Written contracts also simplify later interpretation of what was agreed upon and enforcement of the agreement.
Before signing a contract, you must make sure that all the terms and conditions stated in the agreement are possible to perform and are acceptable to you. Knowing your legal rights and obligations under a contract will help you satisfy your obligations and allow you to identify and enforce your rights when another falls short of meeting his or her contractual obligations.
When a problem arises regarding an agreement, there are a variety of scenarios that fall under the breach of contract umbrella. They include
- Missed Deadlines
- Inadequate Performance
- Breach of Lease
- Failure to Satisfy Sales Terms
- Failure to Perform
- Failure to Deliver
- Faulty Delivery
- Delivery of Faulty Products
The above list is not exhaustive. In fact, in any situation where two or more parties have reached an agreement and one party does not satisfy the terms of that agreement, there is a breach of contract. The most effective way to determine if a contract potentially has been formed or breached is to consult a lawyer. Review of case-specific facts by skilled lawyer is recommended in every case.
What Is a Breach of Contract?
A contract is a legally enforceable promise between two or more parties. If a party breaks a commitment contained in or contemplated by an enforceable contract, the other party can seek to recover the economic loss caused by that breach of contract, or, under certain circumstances, to have the contract terms specifically enforced. When any provision of a valid contract is not honored, a breach of contract occurs, although all breaches are not necessarily actionable.
As stated above, it is always better to have a written contract to establish breach of contract when one party fails to perform their duties because those duties should be specified in the written contract. Contracts that are not in writing also have many other limitations. For example, often times they have to be performed within one year to even be enforceable.
One or both parties may breach a contract. A breach of contract can result in legal consequences for the breaching party. A breach may either be material or non-material depending on the nature of the conduct breached. That classification may determine one’s ability to recover damages.
How to Prove a Breach of Contract
To win at trial (or reach an early settlement), Bonsignore Trial Lawyers will work with you to prove the following “elements” necessary to establish a breach of contract claim.
- The Existence of a Valid Contract
The first step in proving (or evaluating) a breach of contract claim is determining whether the contract in issue is valid. A contract does not always need to be in writing, and an oral contract is enforceable if a party can prove its existence. To prove the existence of a valid and enforceable contract, a party must establish the following three elements:
- Offer – An offer can range from the presentation of a formal, lengthy legal document to the simple expression of an intent to enter a contract. Not all discussions of future deals are offers. The facts and circumstances surrounding each offer must be individually evaluated. Often the scope of the matters contained in an offer is the central issue in dispute.
- Acceptance – Acceptance refers to circumstances where the parties have reached a meeting of the minds and have agreed to all of the essential terms of the contract. Because the scope of the matters upon which the parties have reached a meeting of the minds is vital to the enforcement of contract terms, written contracts are always preferable to oral contracts. Written contracts better memorialize of the essential terms that have been addressed and accepted by each party.
- Consideration – To create a valid and enforceable contract, the parties must do more than simply have a meeting of the minds. Each party must have given and received something of value. A contract based on services rendered in the past is not likely to be enforceable standing alone. Similarly, a one-sided promise to perform with no return consideration from the other party is also not likely to be an enforceable contract.
Breach of the Contract’s Terms – A breach occurs when a contractual promise is broken. However, not every term of the contract is required to be adopted literally. A breach of contract that detracts value from non-breaching party will support a breach of contract claim.
Breaches of contract that do not take away value from an agreement are considered minor breaches and are unlikely to support a breach of contract claim. Additionally, the fact that the plaintiff performed his or her obligations under the contract, or a just excuse as to why the plaintiff did not perform must be established. The policy behind this requirement is that you cannot sue another for breach of contract if you did not perform your own obligations under the contract.
There are several different types of breaches. For example:
Material – A material breach is a major breach that cuts to the heart of the contract. It affects the subject matter of the contract and negatively changes the outcome of the agreement. Where the non-breaching party did not receive the “substantial benefit” of the bargain, there is a material breach of contract. A material breach defeats the intent of the parties when they entered into the contract. A material breach goes beyond the terms of the contract, and is very unfair. When a party advances the theory that a material breach has occurred, most, if not all, these arguments will be advanced.
Non-Material Breach – A non-material or “minor” breach is a failure to perform a duty that only involves minor details that do not impact or change the subject matter or material outcome(s) of the contract. A non-material breach is usually considered to be less serious than a material breach. It is often unrelated to the subject matter of the agreement.
Fundamental Breach – A fundamental breach breaks a fundamental commitment in the agreement. A fundamental breach involves a term of the contract that is so integral to the subject matter of the contract that the wronged party is permitted to terminate his or her obligations and fulfillment of the terms.
Anticipatory Breach – An anticipatory breach occurs when one party can objectively conclude that the other party to the contract will not fulfill his or her obligations under the contract, even though he or she has not yet failed to carry them out. In the face of an anticipatory breach of contract, the law sometimes allows a non-breaching party to the contract to repudiate his or her part of the agreement first.
Intent- If one party did not intend to make an exchange, the transaction may be treated as a gift.
Damages – When a party has been victim to a breach of contract, he or she must prove that the other party harmed him or her in some way to receive a recovery. The related loss is referred to as damages. Most generally, the breaching party must pay for any expenses that arise from its breach of the contract’s terms. Damages include obvious and not-so-obvious related economic loss. On occasion, the value of non-economic loss is also compensable. If included in the terms of the contract, the breaching party can also be ordered to pay punitive damages. Alternatively, a breach of contract can bring rise to related claims that allow for punitive damages. Punitive damages are punishment and also intended to deter future bad conduct. Damages for breach of contract claims usually come with a higher statutory interest rate and one that starts on the date of the breach, not the date the judgment is entered.
Typically the remedy for a breach of contract action is money, which is most commonly the judgment awarded by a court. However, certain breach of contract claims, for example those relating to real estate, should also include a claim for specific performance. Bonsignore Trial Lawyers will not only help you establish liability, we will work with you to identify and establish the damages claim that best fits your needs.
The Legal Consequences of Material and Non-Material Contract Breaches
Material Breach – Where a party to contract commits a material breach, the non-breaching party is entitled to immediately file for breach of contract and to recover damages and will be excused from performing his or her part of the contract.
Non-Material Breach – Where a party to contract commits a non-material breach, the non-breaching party is entitled to sue for any damages caused by the breach but must still perform his or her part of the contract
Defending Against a Breach of Contract Claim
Breaching a contract almost certainly brings legal consequences. However, there are exceptions to this general rule. For example, the breach of a contract term may have no legal consequences if a valid contract was never formed. Again, to form a valid contract, there must be an offer, acceptance, intent and consideration. In other circumstances, a contract may be rescinded. Other instances where a breach of contract may be defended include:
Void Contracts – Many times, breaching a contract that is void is has no legal consequence. A contract may be void if enforcing it would be against the law.
Minors – Minors cannot enter into contracts because they lack the legal capacity to enter into a contract. The age of majority varies from state to state. A parent or legal guardian may contract on behalf of a minor.
Mental Capacity – Breaching a contract with someone who lacked mental capacity may have no legal consequence because a party who lacks mental capacity cannot enter into a valid contract. The determination of sufficient mental capacity to enter into a contract varies from state to state. For example, some courts look at whether the person understood what he or she was doing at the time of contract creation, others look at whether the person had control over his or her actions at the time of contract creation, and some look at both.
Duress – Duress can be broadly described as any unlawful threat or coercion used to induce another to act or not act in a manner he or she otherwise would not or would act. For duress to qualify as a defense, the following four requirements must be met:
- The threat must be of serious bodily harm or death;
- The harm threatened must be greater than the harm caused by the crime;
- The threat must be immediate and inescapable; and
- The defendant must have become involved in the situation through no fault of his or her own.
A party may also claim duress if force or violence is used to compel him or her to enter into or carry out the terms of a contract. A party who enters a contract under duress may rescind it. Importantly, the determination as to whether a party to contract lacked mental capacity is highly dependent on the specific individual facts of the case.
Undue Influence – Undue influence is different than duress. Undue influence occurs when a dominant party exerts excessive pressure on a weaker party to sign a contract. Like duress, this defense if proven will result in the right to rescind the contract and is highly fact specific and depends on state-specific law.
Generally, to advance a claim of undue influence, the following four requirements must be met:
- The probability of undue influence – For example, physical or mental illness or a traumatic event.
- The opportunity to be dominated – For example, the parties share a special relationship and the victim reasonably believed that the offending party had the victim’s best interests in mind.
- Acts taken to influence the victim – For example, isolating the victim or constantly pressuring the victim into a decision.
- Unusual or suspicious transactions – For example, the offending party coerces the victim into doing something that benefits the offender, not the victim.
No Writing – Many contracts can be made orally, but there are certain agreements that must be written. For example, the Statute of Frauds requires certain types contracts to be in writing. If the contract falls into one of these categories and is not in writing, then it may be unenforceable if they involve the following:
- Terms of the contract cannot be completed within one year;
- The sale or transfer of land;
- A promise to pay another’s debt obligation;
- The sale of goods for more than a certain amount;
- A promise that will go beyond the lifetime of the party obliged to perform under the contract.
Not-Intended Agreement – On rare occasions, a contract does not reflect the original intention of the parties. In those situations, a breaching party may be able to avoid legal consequences if he or she can show that other agreements were made outside the contract, the outside agreements change the nature of the contract, and no subsequent enforceable contract has a merger clause.
Mistake – Enforcement of a contract may be defended against on the basis of mistake if the parties have a mistaken belief about a fact upon entering into a contract. If only one party is mistaken, it is a unilateral mistake, or a mistake by only one of the parties to a contact, and it does not excuse performance. Breaching a contract based on a unilateral mistake may bring legal consequences.
Unconscionable Terms – Rarely, contract may be voided if it is unconscionable. An unconscionable contract is one that is so one-sided that no reasonable person would agree to the terms.
Impossible Performance – A contract may be voidable if an intervening circumstance occurs that makes performance by a party impossible. Circumstances that make performance more or very difficult do not necessarily make the contract impossible. A party may be excused from performance only when an overriding event has frustrated the purpose of the contract.
Regardless of the state, the determination of the following defenses to the enforcement of a contract is highly dependent on the individual facts of each case. The only way to obtain an expert evaluation of whether a contract has been formed or breached is to consult a lawyer. Review of case specific facts by skilled lawyer is needed in every case.