What Is a Breach of Contract?
A contract is a legally enforceable promise. The promise is usually for the purchase of an item or for a service or job rendered. If a party breaks a promise, the other party may be able to sue for breach of contract. To win a breach of contract action, the plaintiff will have to prove three elements:
1. Existence of a Valid Contract
For there to be any breach at all, there must first be a valid contract. The contract does not need to be in writing. Oral contracts are enforceable if a party can prove their existence. To prove the existence of an enforceable contract, a party must establish three elements:
- Offer – this can simply be an intention to enter a contract. However, not all discussions of future deals will be offers. For example, an advertisement will probably not be considered an offer.
- Acceptance – this means the parties have genuinely agreed to all of the contract’s essential terms. This is an area of the law where written contracts are preferable to oral contracts. Written contracts tend to be a more clear expression of the essential terms each party has accepted.
- Consideration – this means each party must have given and received something of value. Put generally, a unilateral promise is probably not an enforceable contract; neither is a contract based on services rendered in the past.
2. Breach of the Contract’s Terms
Generally, a breach occurs when a contractual promise is broken. However, not every term of the contract must be taken literally. Only a breach of contract that detracts value from non-breaching party can warrant a lawsuit. Such instances are considered material breaches. Breaches of contract that do not take away value from agreement are considered minor breaches and are highly unlikely to succeed as a lawsuit.
There are also other types of breaches. A fundamental breach is a breach that breaks a fundamental aspect of the agreement, an aspect so important that the wronged party can terminate the fulfillment of the contract. An anticipatory breach is where one party has every reason to suspect that the other party will breach, even if they have not yet, so they repudiate their part of the agreement first.
3. Damages for Breach of Contract
To recover for breach of contract, a party must prove that the other party harmed them in some way. This is referred to as damages. Damages cover money lost, but may also include time lost as well. In general, the breaching party must pay for any expenses incurred because of the violation. In addition, the breaching party can also be ordered to pay punitive damages Punitive damages are punishment for the party breaking the contract. If the contract itself states any additional payments made to a party should the contract be broken, the terms on that contract may also be fulfilled in addition to what a court awards.
If possible, the offending party can also be ordered to complete the terms of the contract. Alternatively, the wronged party may ask the court to void the contract and restore the position the wronged party was in before entering the contract.
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The basic rule is that parties to a contract must perform as specified in the contract unless (1) the parties agree to a change in the contract’s terms, or (2) the actions of the party who deviates from the terms of the contract are implicitly accepted (“ratified”) by the action or non-action of the other party.
If there is no acceptance of deviation from the terms of the contract, and the deviation is serious enough to make any real difference in the intended result of the contract, then the deviating party is said to have breached the contract.
Of course if one party fails more or less entirely to perform the contract, or totally prevents the performance of the contract by the other party, the situation is straightforward. The situation becomes more complex where the argument is over such things as the quality of materials, the timing of work, or the quality of the work performed when the contract involves services.
Breach of contract leaves the nonperforming or improperly performing party open to a claim for damages by the other party.
The aggrieved party, to help support his/her claim for breach, should have done all the things required of him/her under the contract up until the time of breach, and must have done nothing to make it impossible or unreasonably difficult for the other party to perform his/her responsibilities under the terms of the contract.
There are so many ways for non-performance of a contract to occur that the courts have been forced to analyze the matter in much more subtle terms than “breached” or “not breached.” contracts.
The doctrine of “substantial performance” saves a party who has largely fulfilled his obligations under a contract from suffering major loss merely because he has unintentionally fallen short in some particular aspect which does not affect the essence of the contract.
The ordinary remedy for breach of contract is money damages.
Some contracts go so far as to include an agreement on a set amount of “liquidated damages” which are to be paid in case something goes wrong. These are acceptable to the courts as long as the amount of liquidated damages is a reasonable estimation of the harm that would be done by the breach. If the amount is so excessive as to amount to a penalty or fine rather than compensation for harm the courts will ignore the liquidated damages clause and assess damages by actually measuring at trial the financial harm done by the breach.
If you want to be able to collect attorney’s fees in the event of a breach of contract, there must be an attorney’s fees provision in the contract.
If you and the other party live in different geographical jurisdictions, you should try to include a provision that says that the contract is to be enforced under the laws of your jurisdiction. This makes it possible for any litigation concerning the contract to take place in a court near your home.
The purpose of damages in breach of contract actions is to place the injured party in as nearly as possible the same position he/she would have been in had the contract been properly performed, and at least to restore him/her as nearly as possible to the position he/she would have been in had he/she made no contract at all. In other words, no one should suffer loss because another has failed to perform a contract properly.
Where nonperformance is total, for example, the damaged party should get back any money he has paid, along with additional money to compensate him for any actual financial loss that resulted from the nonperformance. The loss must have been a reasonably foreseeable result of the nonperformance.
Do not expect, however, to receive money damages designed merely to punish the breaching party for dishonesty or bad behavior. Such “punitive damages”, which are possibilities in some suits for personal injury and other wrongs, are not available in breach of contract actions. Of course if you can allege that you were defrauded, for example, then you are suing for wrongdoing beyond the breach of contract, and you may receive punitive damages.