A breach of contract may occur when a party to a valid contract has failed to fulfill their side of the agreement.
For instance, the terms of a contract are what guides the parties in what they must do and how they should do it in order to maintain their promise. If a party does not do what the contract instructs that they do, then the non-breaching party will be allowed to take legal action and can file a lawsuit against them in court.
A breach of contract can occur as either a partial or a complete breach. A court will also assess whether the breach was a substantial one or only a minor one. This will help the court determine what type of damages the breaching party should have to pay.
What are the Ways You Can Breach a Contract?
There are three main ways for which a party can be held liable for breach of contract. This includes when:
- There is an anticipatory breach. Often referred to as anticipatory repudiation, this type of breach occurs when the breaching party tells the non-breaching party that they will not be fulfilling the terms of their contract. Once the other party is notified, they can sue for breach of contract.
- A party has committed a minor breach. A minor breach of contract happens when a party fails to perform a small detail of the contract. In this case, the entire contract has not been violated and can still be substantially performed. This also comes up when there is a technical error with the contract (e.g., a wrong date, price, or typo within the terms of the contract).
- If there is a material or fundamental breach. These are the most common types of breaches cited as the basis of a breach of contract action. This is when the breach is so substantial that it essentially cancels the contract because it renders performance by either party impossible.
Some other ways that a contract can be breached include when the contract is fraudulent, if the contract was formed illegally or is unconscionable, and when there is a mistake of fact present in the contract terms. The parties may also include conditions that are unique to their particular contract, which will specify when a party’s actions can be considered a breach.
Additionally, state laws 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 the contract, then it is important for them to take the necessary steps to fix the breach immediately. The party should strive to correct their mistake before the other party becomes aware of the breach or at least before they can file a lawsuit against them.
The following are some general steps that a party should take if they are the one responsible for breaching a contract:
- The first thing that a breaching party should do is to re-read the contract and find the section that discusses what the parties can do in the event of a breach. For example, a clause in the contract may state that the agreement is terminated and there is no way for the parties to resolve it now. Alternatively, the contract may say that a party has a certain time frame in which they can fix the issue before the non-breaching party is permitted to file a lawsuit.
- Next, if the party discovers that they cannot completely fix the breach, then they should speak with the non-breaching party to show good faith. This can help the breaching party appear more favorably in front of the court if the issue turns into a lawsuit. Also, the parties may be able to find a way to resolve the breach on their own without the intervention of a court.
- Lastly, the breaching party should look for another 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 they resorted to legal action. Taking these steps can sometimes help the court resolve the parties’ issue faster.
Alternatively, when a person is the non-breaching party to a contract, then they will have a right to file a lawsuit against the breaching party. Again, there are several steps available for the non-breaching party to take before filing a claim, which includes:
- The non-breaching party should also re-read the contract. While reading, they should be on the lookout for clauses that say what to do in the event of a breach, whether there is a liquidated damages clause contained in the contract, and if the breaching party has a certain amount of time in which they can try to fix the breach.
- Second, it would be in the non-breaching party’s best interest to give the breaching party a chance to resolve their mistake. If they find that they cannot fix the issue, but are willing to compromise in a way that fulfills the non-breaching party’s needs, then it is beneficial for both parties to come to an agreeable solution and not involve any legal action.
- On the other hand, the non-breaching party is not obligated to say yes to a remedy that does not fully resolve the breach or does not sufficiently compensate them for the damages they suffered from the breach. If this is the case, then the non-breaching party should consider filing a lawsuit to make up for any damages they suffered.
- Finally, once all other options have been exhausted, then the non-breaching party should file a lawsuit with the court. Prior to filing, they should collect any relevant documents that will prove the other party breached the terms of the contract and should have a copy of the contract on hand as well for the court.
How Do I Sue for a Breach of Contract?
Before filing a breach of contract claim, it is important to review the contract for any clauses that state whether or not a lawsuit may be brought.
For instance, the contract terms may only allow the parties to enter into mediation or arbitration to resolve an issue. There also may be a time limit or procedure that the parties have to follow before they can file a lawsuit.
Next, a party should also check if there are certain elements present for the case. For example, most breach of contract claims typically involve having to prove the following four factors:
- That they have entered into an actual contract and that the contract is considered to be valid according to contract laws;
- The party must be able to show evidence that they upheld their end of the bargain despite the other party not doing their part;
- The party also must be able to prove that the breach amounted to a material or substantial violation of the terms of the contract. Minor or technical errors in a contract will generally not qualify for breach of contract claims; and
- Lastly, the party must demonstrate that the losses they suffered were in fact caused by the breach and can be calculated with a reasonable degree of certainty.
After both of these initial steps have been completed and if it is possible, the party should then file a breach of contract claim with the proper court. Where, when, and how the contract can 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.
Although a party can learn much of this information by reading their contract and reviewing local legal resources regarding contract disputes, it might be more helpful to consult with a local contract law attorney who will be able to provide specific legal advice.
What are the Penalties for Breach of Contract?
In general, there are two types of remedies that a party can receive for breach of contract: legal remedies or equitable remedies. Legal remedies refer to monetary award damages, such as compensatory, nominal, and liquidated damages.
In contrast, equitable remedies are issued by a court when a legal remedy will not sufficiently make up for the damage done. This includes remedies, such as specific performance, reformation, 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 do as punishment.
For example, when a person who is selling their house refuses to hand over the keys and property to the buyer at their closing, then the buyer may sue for specific performance. This means (assuming that the proper steps were taken of course) that the court can force the seller to give up their property to the buyer.
The type of legal remedy awarded will also determine how to calculate the amount of damages that the plaintiff should receive.
For instance, suppose a buyer has already paid for certain items to be shipped to them, but the company who owns the products never sends the order, refuses to do so, and keeps their money. The buyer can then sue for breach of contract and collect compensatory (monetary) damages from the seller, or they might seek restitution for the missing merchandise instead.
Other examples of damages might include expectation, reliance, consequential, and punitive damages. It is important to note that punitive damages are rarely awarded. However, if punitive damages are awarded, then the defendant can expect to pay a much higher amount of fees. This is because punitive damages are meant to punish and deter the defendant and others from behaving that way again in the future.
What are Some Defenses for Breach of Contract?
There are many defenses that can be raised against a breach of contract claim. Some of the more common types of defenses against a breach of contract include:
- Fraud: Fraud occurs when a party intentionally misleads another party about the purpose or conditions of a contract to persuade them to sign and fulfill it.
- Capacity: If the breaching party lacked the capacity or competency necessary to enter into a contract (e.g., was a minor or mentally incapable), then this can be used as a defense.
- Illegal: 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.
- Mutual Mistake: If the parties are mistaken about the purpose or terms of their agreement, then this can serve as a defense to breach of contract.
- Duress: If the other party forced the breaching party to sign the contract against their will, it is a defense and will invalidate the contract.
- Unclean Hands: Unclean hands or the “dirty hands” doctrine is typically raised in cases where both parties have committed a wrongdoing that led to a breach of contract. It is an equitable or affirmative defense that prevents the party bringing the lawsuit from collecting any damages because both are at fault.
- Once the defendant raises it as a defense, the burden of proof will then shift 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 applies to contracts and states that certain contracts must be in writing to be valid and enforceable by a court.
- Unconscionable Contract: An unconscionable contract is one that is created in a way that provides one party with many benefits and the other with almost no advantages. This often occurs in cases where there is an individual or small business being taken advantage of by a larger corporation during contract negotiations.
- While this is not exactly a type of defense, if the court finds that the contract is unconscionable, then they will usually void (cancel) the contract, which will release the parties from any contract obligations. Also, in such a situation, no damages or remedies will be awarded.
Do I Need a Lawyer for a Breach of Contract?
Not all breach of contract scenarios require legal assistance or court intervention to resolve the issue. For example, if the other party to the contract is a friend or neighbor and the terms of the contract relate to something of little value, then you should try to work out any issues amongst yourselves. This can save you both time, money, and your relationship.
On the other hand, if it is a business contract or the terms of the contract involve something that is of great value like a house, then you should contact a local business attorney or 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 also speak with a 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.