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Breach of Contract

What is a Contract?

Simply put, a contract is an agreement between two or more private parties. This agreement creates mutual legal obligations and may be either oral or written. It is important to note that oral agreements are more difficult to enforce in a court of law. 

In fact, some contracts are actually required to be written in order to be enforceable. An example of this would be a contract that involves a significant amount of money, such as over $500.

All valid and legally enforceable contracts must contain the following information:

  • An offer, such as what one party will pay the other party for a specified amount of goods or services;
  • An acceptance of the presented offer;
  • A promise to perform;
  • A valuable consideration;
  • The time or event in which the performance must be made;
  • The specific terms and conditions for the performance; and
  • What should happen if one or both parties fail to abide by the contract's terms.

What is a Breach of Contract?

A breach of contract occurs when the agreement is not kept, due to the fact that one party does not fulfill their obligations as specified by the contract's terms. Some examples of how a breach may be made include but are not limited to:

  • One party failing to perform in the specified timeframe;
  • One party fails to perform at all;
  • One party performs, but not in accordance with the specified terms; and
  • One party fails to sign and therefore verify the contract.

Essentially, if either party fails to fulfill their legal obligations as specified by the contract, that party has breached the contract. The party who experiences any losses due to the other party's breach may be compensated for their losses. 

The general rule of contract law applies, but it is important to note that many contracts contain a provision regarding what should be done in the event of a breach. Breaches of contract can be minor, material, fundamental, or anticipatory. This article will discuss the differences between minor and material breaches of contract.

What is a Minor Breach of Contract?

A minor breach occurs when one party substantially performs or meets the essential obligations of the contract, but does not meet a minor condition. The breaching of this minor condition does not significantly affect the contract's terms. All parties involved can otherwise fulfill any remaining contractual obligations in spite of the breach. A minor breach may also be known as a partial breach.

Although the breach may have been minor, the non breaching party may still sue the breaching party for any damages caused by the failure to perform the minor detail. A minor breach requires all parties to complete their obligated performance of the contract. A party would not need to perform its part of the contract when a material breach occurs.

What is a Material Breach of Contract?

A material breach of contract is substantial enough that it excuses the non breaching party from performing their obligations per the contract. An example of this would be a home purchasing contract in which the seller refuses to give the buyer the keys to the home although the buyer completed all contract terms. 

The breach is so substantial that it impairs the contract as a whole, and renders the purpose of the agreement completely defeated. A material breach may also be referred to as a complete breach. 

What Can Be Done About a Minor or Material Breach?

The main difference between a minor breach and a material breach is the severity of the breach. A material breach is considered to be much more serious, as it makes completing the contract difficult or impossible. A minor breach is insignificant enough that the rest of the contract can be completed in a generally satisfactory matter. As previously mentioned, the non breaching party may sue for damages caused by the minor breach, but both parties must continue any necessary further performance. If either party refuses to fulfill the rest of the contract, that party may then be held liable for a material breach.

Once one party has committed a material breach, the non-breaching party may refuse to perform and sue either to compel the breaching party's performance, or for any damages caused by the breach. If a material breach occurs, it is important to document the exact nature of the breach and ensure that it is actually in violation of the contract.

Most contracts contain information on what should be done in the event of a breach in order to minimize the harm that both or either party may experience.

What is an Equitable Remedy?

Equitable remedies are a particular set of remedies that can be issued by a court during a breach of contract case. In general, remedies are typically divided into two categories: legal remedies and equitable remedies. Legal remedies are those that allow the non-breaching party to recover compensatory (i.e., money) damages. 

On the other hand, equitable remedies are actions that a court must prescribe. They are often used in order to help resolve a substantial breach or contract dispute when money damages would be considered insufficient to resolve the issue or protect the parties from harm. 

Also, equitable remedies are usually not available as an option until the parties can show the court that legal damages will not be enough to resolve their contract issue. 

What Equitable Remedies are Available for a Breach of Contract Dispute?

Equitable remedies are usually provided by the court in the event of a material breach of contract claim. In general, there are three primary equitable remedies that parties typically receive from a court. These include the following equitable remedies:

  • Contract Reformation: The equitable remedy of contract reformation means that the court will instruct the parties to rewrite their original contract in a way that will reflect the true intentions of each party more accurately. The main factor that must be present in order to be granted this remedy is that it requires the parties to initially have had a valid, working contract in existence already; otherwise, there will be no contract for the parties to rewrite. 
    • In addition, contract reformation is often prescribed in cases where there was either a mistake or misrepresentation in a portion of the contract terms. Also, unlike contract rescission, a contract can be reformed in whole or in part. Hence why it is sometimes referred to as contract “rectification.”
  • Specific Performance: Specific performance is essentially a decree or court order that requires the party in breach to fully perform their part of the contract according to the terms laid out in the parties' agreement. For example, this might include requiring the breaching party to deliver goods which have already been previously paid for, or to render payment to another party for their services. 
  • Contract Rescission: Contract rescission is when the court orders the parties to terminate or cancel their entire contract. The main goal of contract rescission is to put the parties in the same position that they were in before they entered the contract. This helps to reduce the cost of damages done to both parties. It also releases both parties from having to perform their side of the agreement.

The parties may also ask the court to issue an injunction against a party who breached the contract. An injunction is a court order that forces a party to either take a specific action or refrain from taking a particular action.

For instance, while a court will usually not order a party to finish a job, they can issue an injunction that prevents that party from seeking employment at companies that are considered competitors of their original employer. 

A court may also issue an injunction when a seller refuses to sell a buyer their home at a closing (e.g., after all the proper steps are taken and the buyer has paid). Alternatively, they may force a buyer to pay the seller for the home in accordance with the terms of their contract. 

Finally, the circumstances of the breach will usually dictate which equitable remedy the court will agree to enforce. This is because courts have a lot of discretion when addressing an issue that calls for equitable relief. The court will consider several different factors before they issue their ruling, such as the prior business dealings of the parties or the respective bargaining power of each party. 

Can I Obtain Both Legal and Equitable Remedies?

As previously mentioned, it is typically required that a party seeks legal remedies (e.g., a compensatory or monetary damage award) before the court will even consider granting equitable relief. In other words, if the parties cannot show that money will not fix their contract dispute, then they will most likely not be eligible for any of the equitable remedies listed above.

On the other hand, there are certain situations where a party to a contract may be able to receive monetary compensation under the rules of equity. These are known as “restitutionary damages”, which are an extremely specific and very limited type of damage in a breach of contract case. 

The purpose of restitutionary damages is basically to prevent one party from being unjustly enriched for their breach. For example, if the non-breaching party has already delivered their goods, but the other party has not yet paid for them, then a judge may order the breaching party to pay restitutionary damages to stop them from receiving an agreed upon benefit for free and at the expense of the other party.

What Are the Types of Damages Awarded in Breach of Contract Cases?

Although the plaintiff in a breach of contract case must specify the damages they are seeking in their complaint, it is up to the court to decide what type of damages, if any, that the plaintiff should receive. There are several factors that the court takes into consideration when making this determination.

Generally speaking, the most common remedy for a breach of contract case is a monetary damages award. Monetary damages are also known as legal damages, and can be defined as the amount of money awarded to the injured and prevailing party in a lawsuit. These damages are typically paid out by the party who caused the injuries, and may be issued as a penalty, restitution, or both. 

Some examples of monetary damages and other legal remedies include:

    • Restitution: The purpose of restitution is to restore an injured party to the position they were in before a contract was formed;
    • Liquidated Damages: This is a pre-set amount meant to reflect an estimate of the actual damages a party should receive, should a contract breach occur. Liquidated damages clauses appear in contracts where the subject matter may complicate the process to predict the amount of actual damages;
    • Nominal Damages: Nominal damages are essentially symbolic, and are awarded when no true harm resulted from the breach of contract. Because these damages represent more of a matter of contract principles, nominal damages can be as low as one dollar; 
    • Quantum Meruit: Quantum meruit is a Latin phrase which translates to “what one has earned.” This is intended to recover the reasonable value of services performed by one party for another;
    • Remedies in Equity: Remedies in equity refer to a different form of legal remedies, and are not at all related to monetary damages; and
    • Punitive Damages: Punitive damages are issued when there is an incentive to punish and deter the offending party from re-committing such outrageous and offensive actions in the future.

What Are Compensatory Damages in a Contracts Claim?

Compensatory damages are the most popular form of legal remedy requested in breach of contract cases. They are meant to compensate the non-breaching party for any financial losses suffered as a result of the breached contract. Compensatory damages are used to make the non-breaching party whole again, and can include such things as costs for loss of future earnings, costs of hiring new parties to complete the contract, etc. 

The term “compensatory damages” covers general damages and specific damages. General damages commonly cover losses that are directly related to the subject matter of the contract, such as failing to meet a set number of shipments. Specific damages, on the other hand, compensate the plaintiff for losses related to the breach, but not resulting directly from the breach. An example of this would be damage to a business' reputation. 

What Is Required to Prove Compensatory Damages?

In most breach of contract lawsuits, the plaintiff must specifically state that they are requesting compensatory damages when they file the claim. This is especially true for special damages, as those involve losses that are not addressed in the terms of the contract. If the plaintiff fails to request compensatory damages, they may be ineligible for monetary damages.

Some additional requirements for proving compensatory damages include:

    • Causation: The defendant's breach must be the reason for the plaintiff's economic losses. These may either be directly caused,as in general damages, or indirectly caused, such as special damages;
    • Foreseeability: The losses must be foreseeable at the time of contract formation. Meaning, the foreseeable damages should be considered as reasonably arising naturally from the breach; or, in the contemplation of both parties as the probable result of a breach. If the losses were not foreseeable, a compensatory damages award will not be issued;
    • Calculable: The losses must be quantifiable and able to be calculated into specific monetary amounts. Generally, this is accomplished using fair market values at the time of contract formation; and 
    • Unavoidable: If the non-breaching party could have prevented the losses but failed to do so, they will be disqualified from receiving compensatory damages. This is known as “the doctrine of avoidable consequences.”

To prove each of these requirements, the non-breaching party may need to provide additional evidence in support of their claims. An example of this would be how the victim of the breach may need to provide evidence that they and the defendant engaged in discussion, regarding the risks involved with their contract. The plaintiff may submit transcripts or records of negotiations providing evidence that the parties discussed potential losses.  

What If Compensatory Damages are Unavailable?

There are certain circumstances in which compensatory damages will not be available. State statutes could limit the amount of compensation that a plaintiff may receive in a breach of contract claim. Further, the parties may waive their rights to compensatory damages in a provision contained within the contract. 

If compensatory damages are unavailable, there may be other available remedies. It may be possible to request for certain equitable remedies, such as an injunction ordering the defendant to perform their contractual duties. As previously mentioned, most states require the plaintiff to choose whether they will be requesting monetary damages or equitable remedies at the beginning of the trial. It is important to note that it is usually not possible for a plaintiff to claim both types of remedies. 

Do I Need an Attorney for a Minor or Material Breach of Contract?

If you are involved in a contract and that contract is breached, whether by you or another party, you should immediately consult with a contract attorney. A contract attorney in your area can review your contract to ensure that it is legally enforceable, as well as determine what type of breach may have occurred. Additionally, the attorney can file a lawsuit on your behalf and represent you in court when needed. An experienced and local business attorney will be best suited to understanding your state's specific laws regarding contracts, and how those laws will affect your legal options. An attorney can also represent you in court, as needed, while helping you work towards an appropriate remedy, such as compensatory damages.

Call our office today at 212-994-7777 or complete the convenient online contact form to set up a consultation.