A contract is an agreement between two or more parties that creates mutual legal obligations. It can be oral or written. Some contracts are required to be in writing in order to be enforceable, such as those that involve a monetary amount over $500.
In order to be valid and enforceable, a contract must include:
- An offer;
- An acceptance of the offer presented;
- A promise to perform;
- A valuable consideration;
- A time and/or an event when the performance must be made;
- Terms and conditions for the performance; and
- Actual performance.
The court will not enforce certain contracts which fall under the Statute of Frauds unless they are in writing. These include:
- Marriage contracts;
- Contracts not to be performed within one year;
- Interest in land contracts;
- Paying decedent’s debt guarantees; and
- The sale of goods contracts over a specific amount.
The majority of contracts are governed by statutes of the state in which they are made. Therefore, it is important to consider local laws when dealing with a contract issue. An attorney will be aware of the local laws and how they apply to a contract.
What is a Breach of Contract?
If a party fails to fulfill their legal obligations under the contract, that party has breached. If a party violates the contract, another party will suffer economic losses.
There are two main types of breaches in contract law, a minor breach and a material breach. A minor breach occurs when a party substantially performs, or meets the essential obligations of the contract, but does not meet a minor condition of the contract. This minor breach does not significantly affect the contract terms. The parties involved may fulfill any remaining contractual obligations in spite of the breach.
A material breach, known as a total breach, is a serious violation of the terms of the contract. It generally only harms one party to the contract but may harm all parties because it makes fulfilling the terms extremely difficult or impossible. If a material breach occurs, the non-breaching party is not required to fulfill their obligation under the contract and may seek legal remedies to recover from the harm suffered.
What Legal Remedies are Available for Breach of Contract?
There are legal remedies available to compensate for losses in these situations. A party can:
- Sue for damages;
- Demand specific performance; and/or
- Terminate the contract.
Ultimately, the outcome and amount of damages will be decided by the court.
The most common remedy in cases of breach of contract is compensatory damages. This remedy is intended to compensate the non-breaching party for any losses they suffer as a result of the breach.
If a material breach has occurred, making it extremely difficult and/or impossible for the parties to fulfill their duties under the contract, a court may award an equitable remedy in place of a monetary remedy. This may be done to assist the non-breaching party, or, in some instances, both parties, in recovering from the damage caused by the incomplete fulfillment of their contract.
Examples of equitable remedies include:
It is important to note that equitable remedies are not always granted by a court. In general, equitable remedies are only awarded when the court determines that a monetary award would be inadequate to compensate the party and/or parties harmed by the material breach of contract.
What Makes Damages Foreseeable?
When parties enter into a contract which one of them later breaches, there are foreseeable damages which the injured party should receive due to the breach. These damages should be considered as those reasonably arising naturally from the breach or in the contemplation of the parties as the probable result of a contract breach.
What Rules Govern the Principle of Foreseeability?
There are 3 important rules courts generally recognize when applying the principle of foreseeability. These include:
- The aggrieved party may recover those damages reasonably and naturally arising in the normal or usual course of the contract, known as general damages;
- Recovery of damages is allowed for those damages that were reasonably contemplated by the parties to the contract, at the time the contract was made, as a probable result of a breach. These less obvious types of damages are deemed to be contemplated by the parties if the promisor knows and/or should know that there were special circumstances which would give rise to such damages; and
- For a situation to be foreseeable, the breaching party should have had enough knowledge about a particular situation for them to have contemplated those likely damages.
What If The Other Party Informs Me Of Special Damages Due to Breach?
Assume that Party X makes a contract with Party Y. Pursuant to the agreement, Party Y will deliver a car to Party X’s home on a specific date. Party X informs Party Y that Party X needs the car by that date so they can present it at a car show. Party Y fails to deliver the car on the date agreed to in the contract.
In the previously described situation, Party Y would be liable for both not delivering the car on time as well as the lost profits of Party X. This is because Party Y was aware that Party X needed the car for a car show. If Party Y had not been given that information, the lost profits would not have been foreseeable by Party Y. Party X would be required to provide an amount of lost profits in order to recover.
As shows, sharing information during contract negotiations creates foreseeability and, therefore, liability for the other party for breach of contract. although, in certain situations, disclosure may not be advised, in general, foreseeability creates an incentive for disclosure for parties to a contract.
Can I Claim Emotional Distress For Breach of Contract?
In many cases, it is foreseeable by the parties that a breach of the contract would cause emotional distress. Emotional distress, also known as mental anguish, is a mainly psychological injury that may be asserted in civil lawsuits.
In some cases, emotional distress would be a natural and reasonable consequence of a contract breach. Some instances of emotional distress cannot be claimed in court. For example, job loss would most likely cause emotional distress in a former employee, but courts have ruled that breach of an employment contract cannot include a claim for emotional distress because allowing liability for such distress would create too much of a burden on the legal system.
Exceptions to the rule include cases where a breach also caused bodily harm and/or if the breach is of a type of which serious emotional distress was a likely result. For example, breaching a promise to marriage is one of the only contract breaches where emotional distress alone could carry the case.
Should I Contact an Attorney Regarding the Foreseeability of Contract Damages?
Yes, it is important to contact an experienced contract attorney for any foreseeability of contract issues you may face. These cases are often complex and involve areas of law that may be difficult to understand. An attorney will be able to review your case and contract, provide advice on how to proceed, and represent you during any court proceedings, if necessary.