A contract is an agreement between two or more people or entities which creates legal performance obligations as described in the contract. A contract can be oral or written, but some types must be in writing to be enforceable. If one or more parties to a contract do not perform according to the terms of the contract, then there is a breach of the contract. The remedies for breach of contract are:
- A remedy specified in the contract itself, i.e. liquidated damages;
- An award of money damages;
- Reformation; and
- Specific Performance.
What Are the Ways You Can Breach a Contract?
There are three main ways in which the party to a contract can breach the contract. They include the following:
- Anticipatory breach: This is sometimes referred to as anticipatory repudiation, it occurs when the breaching party tells the non-breaching party that they will not provide the performance promised in the contract. Once the other party is notified, they can claim breach of contract.
- Minor Breach: A minor breach of contract happens when a party fails to perform some minor aspect of the performance called for by contract. In this case, the entire contract has not been violated; it can still be substantially performed. This issue can arise if there is a technical error in the contract (e.g., a wrong date, price, or a typo in the contract);
- Material or fundamental breach: This is the most common type of breach cited as the basis of a breach of contract action. An actionable breach is so substantial that it essentially cancels the contract, because it renders performance by either party impossible.
A contract can also be breached if the contract is fraudulent, if it was formed illegally or is unconscionable, or if there is a mistake of fact in the contract terms. The parties may also include a clause unique to their contract that specifies when a party’s actions can be considered a breach.
Additionally, state law and the type of contract it is (e.g., lease agreement, sales contract, government contract, etc.) may indicate other ways that a contract can be breached.
What Should You Do If the Contract Has Been Breached?
If a party has knowingly breached a contract, they should take the necessary steps to repair the breach immediately. The party should strive to perform their contractual obligation before the other party resorts to legal action.
The following are some steps that a party in breach of a contract should consider taking:
- The breaching party should locate the section in the contract that discusses what the parties can do in the event of a breach, if there is such a section. For example, a clause in the contract may state that when one party breaches the contract, the agreement is terminated and no further action by the parties is required. Alternatively, the contract may say that a party has a certain time frame in which they can repair the breach before the non-breaching party is permitted to file a lawsuit.
- If the breaching party finds that they cannot completely repair the breach, they should then contact the non-breaching party to show good faith. This can help the breaching party appear more favorable in court if the issue results in a lawsuit. Also, the parties may be able to resolve the breach through alternative methods without resorting to legal action;
- Finally, the breaching party can look for an alternative way to fulfill the requirements of the agreement. This will show the court that the parties attempted to work cooperatively and tried to solve the issue before resorting to legal action.
Of course, generally, the non-breaching party has a right to file a lawsuit for breach of contract against the breaching party unless the contract specifically provides otherwise by, e.g. specifying arbitration as the sole method for resolving disputes. Again, several steps can be taken by the non-breaching party before filing a claim, which include:
- Review the contract: The non-breaching party should review the contract for any clause that provides guidance in the event of a breach;
- For example, a liquidated damages clause is a clause that specifies the amount of damages that must be paid by the party who breaches the contract; they are common in construction contracts where delays are a frequent problem. The contract may specify the amount of damages that a contractor must pay for each day of delay in completion of the project;
- or a contract might contain a clause that states that the breaching party has a certain amount of time in which to repair the breach;
- Demand letter: it is in the non-breaching party’s best interest to give the breaching party a chance to repair the breach. A demand letter can communicate a demand for performance or repair, as well as the non-breaching party’s requirements for resolution.
- If the non-breaching party cannot fully repair the breach but is willing to offer a compromise that fulfills the non-breaching party’s requirements, then it is beneficial for both parties to resolve the dispute without resorting to legal action.
- On the other hand, the non-breaching party is not obligated to agree to a remedy that does not fully resolve the breach or does not sufficiently compensate them for the damages they suffered because of the breach. If this is the case, then the non-breaching party should consider filing a lawsuit to seek compensatory damages for any loss they have suffered.
- File complaint: Finally, once all other options have been exhausted, then the non-breaching party should consider filing a lawsuit in civil court.
How Do I Sue for a Breach of Contract?
Before filing a breach of contract claim, a person must review the contract for any clauses that might affect whether a lawsuit can be brought. For instance, the contract may only allow the parties to use mediation or arbitration processes to resolve a dispute. There also may be time limits or procedures that the parties have to follow before they can file a complaint in court.
Next, a party should review the facts to ensure that all elements of breach of contract are supported by evidence. For example, success with a claim for breach of contract requires proving the following four factors:
- Offer, acceptance and consideration: The parties entered into a valid contract through the process of an offer by one party and acceptance of it by the other with an exchange of consideration or value for the performance of each;
- Performance by the non-breaching party: The non-breaching party must produce evidence to show that they performed their obligation per the contract or were justified in not performing it;
- Breach by one party: The non-breaching party also must show that the other party breached the contract in some specific, identifiable way, and it amounted to a material or substantial breach of the party’s promise to perform;
- Damage: The non-breaching party must demonstrate that they suffered a loss because of the breach and that the value of the loss can be calculated with a reasonable degree of certainty.
If the non-breaching party believes that the elements of breach of contract are supported by the facts, the party should then consider filing a breach of contract claim with the proper court. Where, when, and how the lawsuit should be filed will depend on the rules of civil procedure, relevant state laws, and the rules of the court in which it is being filed. An experienced contract attorney should know how to prepare the necessary documents and when and where to file them.
What are the Penalties for Breach of Contract?
In general, there are two types of remedies for breach of contract: legal remedies and equitable remedies. Legal remedies refer to monetary damage awards, such as compensatory, special, nominal, and liquidated damages.
In contrast, equitable remedies are awarded by a court when a legal remedy will not sufficiently compensate a party for the damage done by the breach of a contract. This includes remedies, such as specific performance, reformation, restitution or rescission.
The difference between the remedies awarded will dictate what the non-breaching party can expect to receive and what the breaching party will be required to provide as compensation for their breach.
For example, when a person who is selling their house refuses to hand over the keys and property to the buyer at the closing, then the buyer may sue for specific performance. This means that the court can require the seller to deliver their property to the buyer.
The type of legal remedy awarded will also determine how to calculate the amount of damages that the non-breaching party should receive.
Other types of damages that a non-breaching party might pursue include reliance, consequential, and punitive damages. It is important to note that punitive damages are rarely awarded for breach of contract. However, if punitive damages are awarded, then the defendant can expect to pay a much higher award of damages. This is because punitive damages are meant to punish and deter the defendant and others from behaving similarly in the future.
What are Some Defenses for Breach of Contract?
There are a number of defenses that can be raised against a breach of contract claim. Some of the more common ones include:
- Fraud: Fraud occurs when one party intentionally misleads another party about the purpose or conditions of a contract in order to persuade them to enter into and fulfill it.
- Incapacity: If the breaching party lacked the capacity or competency necessary to enter into a contract (e.g., was a minor or mentally incapable), then incapacity can be a defense.
- Illegality: If the contract itself is illegal, then it would be considered a defense. For example, a contract to sell drugs or murder someone would be an illegal contract; and a court will not enforce it.
- Mutual Mistake: If the parties are mistaken about the purpose or terms of their agreement, then this can serve as a defense to a claim for breach of contract.
- Duress: If the other party forced the breaching party to sign the contract against their will, it is a defense that can invalidate the contract.
- Unclean Hands: Unclean hands or the “dirty hands” doctrine is typically raised in cases where both parties have engaged in wrongdoing that led to a breach of contract. “Unclean hand” is an affirmative defense that prevents the party bringing the lawsuit from collecting any damages because both parties are at fault.
- Once the defendant raises it as a defense, the burden of proof shifts to the plaintiff to prove that they have not in fact done anything wrong to breach the contract.
- Statute of Frauds: The Statute of Frauds is a law that provides that certain contracts must be in writing to be valid and enforceable by a court. So, if a contract is one that must be in writing, and it is not, then a defendant can avoid enforcement by raising the Statute of Frauds defense;
- Unconscionable Contract: An unconscionable contract is one that is created in such a way that one party realizes most of the benefits and the other almost none. This occurs in cases where there is an individual or small business being taken advantage of by a larger corporation in negotiation of the contract.
- While this is not exactly a defense, if the court finds that the contract is unconscionable, then they will usually void (cancel) the contract, which will release the parties from their contract obligations. No damages or remedies will be awarded.
Do I Need a Lawyer for a Breach of Contract?
Not all breach of contract disputes require legal assistance or court intervention to resolve the issue. For example, if the breaching party to the contract is a friend or neighbor and the terms of the contract relate to something of little value, then the parties should try to work out any issues between themselves. This saves the parties time, money, and neighborly relations.
On the other hand, if your dispute involves a business contract or the terms of the contract involve something else that is more substantial, then you should contact an experienced contract lawyer for further assistance.
A lawyer can help you draft, review, edit, and negotiate the terms of your contract. This can help minimize the risks involved with entering into a contract and may help to prevent a legal dispute over contract terms in the future.
Finally, you should definitely speak with an experienced contract lawyer if you want to sue or are being sued for breach of contract. A lawyer can help you prepare your case, determine whether any defenses or remedies are available, and will be able to represent you in court. They can also provide assistance and give advice regarding mediation or arbitration procedures.