When two or more parties enter into a contract, there are certain obligations which have to be fulfilled by all of the parties so that a contract is successfully performed.
However, when one of the parties fails to fulfill any of its contractual obligations, this is called a breach of contract. There are different types of breaches such as when one party:
- Does not perform on time;
- Does not perform for the agreed upon price;
- Does not perform according to the terms of the agreement; and/or
- Does not perform at all.
A breach would be considered as “material” if it affected the basic purpose of the contract to a great degree and it would be considered as “non-material” if it did not significantly affect the contract.
Whenever there is a breach of contract, the first step the parties should take is to review the contract for any information as to what to do in the event of a breach. Most contracts will build in any specific steps or a liquidation clause in case of a breach.
However, if there is no guidance and informal attempts at resolving a contract dispute fail, then the most common next step is to file a lawsuit.
The parties can also choose alternative dispute resolution such as letting a mediator review the dispute or agree to binding arbitration of the issue. The main remedies for a breach of contract are monetary damages, specific performance, cancellation and restitution.
Although it is the non-breaching party which typically recovers damages, a breaching party may be able to recover damages in certain cases such as:
- When Both Parties Breached the Contract in Some Way: It may be that one party breached the contract to a greater degree but that party may still be able recover monetary damages for the losses that it sustained from the other party.
- When the Non-Breaching Party Did Not Give the Breaching Party an Opportunity to Fix the Breach: Typically for minor breaches, the non-breaching party is required to give the breaching party an opportunity to cure the breach if the breaching party is requesting for it.
- However, if the non-breaching party does not let the breaching party to fix the minor breach, then the non-breaching party can be held liable for the losses which the breaching party incurred because of the cancellation of the contract.
- When the Breaching Party Significantly Performed the Contract: Sometimes, the breaching party may have already performed a large part of the contract before it breached and it may have conferred a significant benefit on the non-breaching party.
- In these cases, the breaching party may be given restitution so that it can be put in the same economic situation it was before the contract started.
- When There is a Defense to the Breach: Sometimes, one of the parties may breach a contract because of circumstances beyond its control which interfered with the performance of the contract. If the non-breaching party did not let the breaching party to continue with the performance after the circumstances changed, then the breaching party may be able to recover damages.
Under the first breach doctrine, if a party to a contract does not live up to their obligations which were owed under the contract, that party may not sue to enforce the contract against the other party.
Another way to put it is that if a party committed the first breach, it cannot sue afterwards to enforce the provisions of the contract which were favorable to that party even if there is a subsequent breach by the other party.
However, in order for this doctrine to apply, the first breach has to “material” in terms of its effects on the agreement between the parties. Failure to pay the amount specified in a contract would be considered a “material” breach.
For example, an employer and an employee enter into a contract which mentions the pay that will be provided to the employee and also mentions a non-competition agreement. If the employer does not pay what is owed to the employee according to the contract, then the employer will not be able to enforce the non-competition agreement against the employee which was contained in the same contract.
Another important doctrine is anticipatory repudiation. Sometimes, one party will signal through words or conduct that it does not intend to perform the contract. In other words, it is signaling that it will not perform even before performance is actually due.
In these cases, the other party can anticipatorily repudiate the contract by suspending its performance and suing the other party for breaching the contract.
Regardless of whether you are the non-breaching or the breaching party, it would be beneficial to consult with a contract attorney when there is a breach of contract. An experienced attorney can inform you of the particular rules governing contracts and represent you in court if necessary.