You have probably faced or are currently facing a situation where you entered into a contract with someone, but they did not honor their end of the agreement. The first question you need to ask yourself in these situations is whether you had a legally valid contract.
A legally valid contract exists if there is a valid offer, an acceptance of the offer, and an exchange of some form of consideration. An offer must be clear, definite, and unambiguous. For example, a person that posts an ad seeking offers to sell his guitar signed by a famous musician is not a valid enough offer to form a contract, because the offer is not being made directly to you and does not have a set monetary amount that the person is seeking; a request to get an offer is not itself an offer.
Next, the acceptance of that offer must also be clear and must not change the terms of the offer. Thus, you cannot accept and offer while also adding an extra condition for the other party.
Finally, both sides must have consideration. Consideration basically means that each side must confer a benefit upon the other or suffer a detriment (e.g. I will give you $1,000 and you give me your signed guitar).
Ultimately, these are the elements that must be present for a valid contract:
- Offer that is clear, definite, and unambiguous;
- Acceptance that is clear and does not change the terms of the offer; and
- Consideration with the offer that conveys some type of benefit for one party.
One common misconception is that all contracts must be in writing. However, many oral contracts are considered valid. This means that if one party violates an oral contract by failing to perform, the court may consider that party to be in “breach” of the contract, and award damages to the non-breaching party.
Even if a contract is valid, there are certain circumstances that may excuse one party from performing their end of the agreement. Although the validity of the contract itself is often the concentration of legal disputes, there are other issues that may render a contract void. Courts and contract laws have recognized the following list as reasons where one party may be excused from performing their end of the agreement:
- The Contract is Illegal: This may seem obvious, but contracts that are entered into for illegal goods are not valid contracts, and, thus, all of them are void. You cannot enter into a contract for the purchase of illegal or controlled substances.
- The Contract was Entered Into by Incompetent Parties: A contract may be deemed void and excuse one party’s performance where the contract was entered into by a mentally incompetent party. Thus, you cannot enter into a contract with a person under the age of 18. However, entering into a contract while you are drunk is not always enough of an excuse to excuse your performance of a contract.
- The Contract was Induced by a Threat: You do not have to perform your end of the contract if a threat is the reason it was made.
- For example, if someone said “you better sell me your car for $500 or I will hurt you,” and you accept the offer, you have no obligation to perform that contract (you should also contact the police in this situation).
- Public Policy: Although the subject of the contract may be legal, if it is so beyond social norms, a court will not likely enforce it.
- For example, many states will not enforce a contract for surrogate parenting, because such a contract would force a birth mother to give up her child.
- Misunderstanding of Material Contract Terms: Sometimes a mistake as to the terms of a contract is an excuse for performance. However, this exception is often times complicated and misunderstood.
- The Contract Is Impossible: In contract law, impossibility is an excuse for the nonperformance of duties under a contract, based on a change in circumstances (e.g. one party dies) or the discovery of preexisting circumstances, the nonoccurrence of which was an underlying assumption of the contract, making performance of the contract impossible.
- For example, if you enter into a contract to paint a house, but the house burns down overnight, then you do not have to paint the house.
There are many other situations or circumstances where a contract may be deemed void or voidable, and your performance will be excused.
If a valid contract is violated and there is no legal excuse, the non-breaching party (the party who did not violate the contract) may sue for damages. Damages often depend on the type of breach, whether it be a material breach or a minor breach. If the breach is minor, the non-breaching party must still perform their end of the contract, but can still sue for damages they suffered because of the breach.
For example, if a contract does not specify that “time is of the essence” and a party was supposed to deliver goods on a Monday, but due to a storm the items were delayed to Tuesday, this will be likely be considered a reasonable delay and minor breach. However, if the breach is a material breach, meaning it goes to the heart of the contract, then the non-breaching party does not have to perform their end of the agreement and can sue the other party immediately.
For example, if you contracted to purchase and receive 50 baseballs, but received 50 footballs, this would be considered a material breach, and you would not have to accept or pay for the items.
The main remedies for when an individual or a business breaches a contract are: monetary damages, specific performance, or cancellation and restitution. Monetary damages include the following damages:
- Compensatory Damages: These damages seek to put the non-breaching party in the position that they would have been if the breach had not occurred. For example, if they would have received $100 worth of baseballs from the contract, the compensatory would be $100;
- Punitive Damages: These damages are payments the breaching party makes that are above and beyond the point that would fully compensate the non-breaching party. These damages are meant to punish a wrongful party, and are rarely awarded in a business setting;
- Nominal Damages: These are symbolic damages awarded when a breach occurred, but no actual money loss was proven by the non-breaching party; or
- Liquidated Damages: These are specific damages identified in the contract itself, where the contract specified damages in the event that the contract is breached. These damages must be reasonable given the actual damages that might result from a breach.
If monetary damages are inadequate as a remedy, the non-breaching party may seek other remedies, such as specific performance. Specific performance is essentially where the court orders performance of one party under the contract. Usually specific performance occurs only in situations where the subject matter of the agreement is rare or unique, and monetary damages would not suffice.
Other remedies include restitution, which essentially puts the non-breaching party back in the position they were prior to the breach, as well as cancellation of the contract, which completely voids the contract and relieves both parties from any obligation.
As can be seen, violating a contract can lead to serious legal consequences and repercussions. Thus, if you are involved in a breach of contract dispute, you should absolutely contact a well qualified and experienced contract attorney.
An experienced contract attorney will represent your best interests and help protect you from legal liabilities, even representing you in front of court if necessary.