A contract reflects the agreement between parties that creates a legal obligation on both sides to perform specific actions. A valid contract shows there was mutual assent between the parties as to the terms of performance, there was an offer made by one side and accepted by the other, and a mutual exchange of consideration (value) to bind the parties to the agreement.
Sometimes one or more parties to a contract cannot or will not perform the promises to which they agreed. When that happens, this is considered a breach of the contract. The party may breach the contract by failing to meet a specified time line, failing to perform at all, or by only providing partial performance.
Breaching a contract may entitle the other party to recover legal remedies (i.e. compensatory, consequential, liquidated damages) or equitable remedies (i.e. canceling the contract).
- Minor Breach: Sometimes called a partial breach, it means the party has substantially performed under the contract.
- Material Breach: A material breach is considered a substantial non-performance of the contract so that the other party may be excused from performing in turn. The breach is so serious that it completely impairs the purpose of the agreement. This typically entitles the non-breaching party to be awarded damages for the breach.
- Anticipatory Breach: As the name suggests, one party anticipates the other party has or will breach the terms of the agreement. Under contract law, the party can take legal action to collect damages for the anticipatory breach.
To get damages under the contract, you must prove there was a breach of the contract. The court will look at the contract itself to determine whether there has been a breach and how serious it is. Factors the court may consider include:
- Was the breach minor or material?
- What was the loss to both parties?
- Will compensation cure the breach?
- Is the breaching party willing and able to fix the breach?
- Did the non-breaching party suffer damages due to its own action or failure to mitigate?
- Does the contract excuse non-performance based on the facts surrounding the breach?
- Is the contract clear about what constitutes a breach?
- Does the breach provide for damages and if so, what kind?
The general or “American” rule in most states is that each party pays for their own attorney fees. However, there are exceptions. If you are the prevailing party in a lawsuit asserting a breach of contract, you may be able to recover attorney's fees.
A good contract will address issues of attorney fees and will explain what is considered reasonable. Attorney fees provisions — along with other damages provisions — can often ensure the parties work in good faith towards resolving contractual dispute before they give rise to litigation.
The contract should explicitly address this issue of attorney fees and how to quantify those fees. If it does not, the court will have to determine that itself, usually based on the factors outlined above. The contract will also require that the breaching party be given notice of the intention to collect attorney fees and other damages resulting from the breach.
In some states, there also are statutes that allow for the award of attorney fees to the prevailing party based on the type of case, the seriousness of the violation, the reasonableness of the fees or at the discretion of the court. Under these statutes, the parties do not have control over who is considered the prevailing party. Thus, it is best to include the issue of attorney fees in the contract itself rather than relying on statute.
In the absence of clear language, the court will interpret the contract narrowly. It is important that you make the court’s job as easy as possible so define “prevailing party,” and use recognized terminology like “attorney fees.” For example, if you are asserting multiple counts for breach of contract, winning just one or two may not be sufficient to make you a prevailing party.
Also, you should consider any settlement options because the court, if left to determine the reasonableness of attorney fees, will look at whether the party’s action caused the fees to be unreasonably high.
Most contract dispute are resolved based on what the contract explicitly says or how the court interprets the contract. If you want to make sure you recover attorney fees and other damages, consult with a business attorney who can help preserve your rights.