Breach of Contract
Contracts are an essential tool in any business. It is a written agreement where two or more parties agree to perform, or not perform, certain actions. Once signed, contracts are legally binding and enforceable by the courts. Therefore, a breach of contract is when a party fails to perform any of the contract terms, without justifiable cause. In essence, a breach of contract is a broken promise.
So, what can be done if someone has breached your contract, and essentially, broken their promise?
1. Determine the kind of breach of contract
There are four different kinds of breach of contract and it is important to know which one applies to you. These include:
Minor Breach: This is a partial breach of the contract, where some immaterial provision of the contract was not performed. For example, you hired a landscaper to do your backyard. The job was done on time, but there were errors in the use of certain plants. Due to these errors, you may be able to ask for monetary damages or corrections to the landscape.
Anticipatory Breach: In this situation, a party can claim the contract is broken when it becomes clear the other party will not be able to execute their end of the contract within the allotted time. For example, if you hired a painter to complete a portrait of you by February 1 but the painter hasn’t even started it by January 31, you can try to collect monetary damages since it is clear the painter won’t finish on time.
Material Breach: This breach refers to the failure of one party to perform the essential duties of the contract. A serious breach, this allows the injured party to seek damages in court. For instance, you hired a contractor to paint your home for $8,000. The contractor completed painting your home, but you have not paid him, and therefore, did not hold up your end of the contract. The contractor can take this to court and demand higher monetary compensation.
Fundamental Breach: This is an extremely serious breach, allowing the injured party to not only sue for damages, but also terminate the performance of the agreement. To illustrate, imagine you have a lease agreement to rent a property. But, when you show up at the property, you find out it has already been leased to someone else. As the “injured party”, you can sue the property manager and terminate your lease agreement.
2. Make sure you have a contract
To be able to sue on the basis of a breach of contract, you must show a valid contract. Therefore, you must be able to verify that:
- A contract exists (where offer, acceptance, and consideration were exchanged between the parties).
- The contract was broken.
- Losses were incurred.
- The person or business that “breached” is responsible for the losses.
3. Write a demand letter
Before commencing litigation, it is important to write a demand letter first. A demand letter outlines your claim and must include the following:
- The terms of the contract.
- Details of how the contract was breached.
- The damages or losses resulting from the breach (include claims for interest).
- Further legal action for failure to respond.
- Note that you are complying with any pre-litigation protocol (outlined in the contract).
A demand letter is a cost-effective way of resolving a breach of contract. It is highly recommended that the assistance of an attorney is sought when preparing a demand letter to ensure the letter is complete and contains no inconsistencies and errors.
4. Know your legal remedies
There are many different types of remedies available for a breach of contract. However, some may be specifically excluded in your contract so it is important to review your contract prior to commencing litigation.
Common monetary remedies include:
- Compensatory Damages – Money paid to reimburse costs and compensate for losses incurred.
- Consequential Damages – Money awarded when all parties were aware – at the time of signing – of the potential losses in case of a breach.
- Liquidated Damages – Monetary amount specified in the contract that the parties agree to when the contract was signed or accepted.
- Punitive Damages – Money awarded to the injured party that is above their actual damages. These are often rare and awarded when the defendants’ actions are malicious or offensive.
- Attorney’s Fees – Monetary compensation allowed if specifically stated in the contract or authorized by statute.
Non-monetary remedies include:
- Specific Performance – A court order for the parties to follow through on the original contract.
- Rescission – A court order cancelling the the contract and ordering money to be returned. The effect is as if the contract never happened.
- Reformation – A court order having the contract be re-written to better reflect the original intention of the parties.
5. Alternative dispute resolution
Review your contract to see if there is an “alternative dispute resolution” clause. If the contract has one, you will need to go through the process outlined. The “alternative dispute resolution” clause usually includes:
- Mediation – A process wherein a trained neutral person (mediator) assists the disputing parties in resolving their conflict.
- Arbitration – A formal process of settling disputes between two parties through an impartial third party, whose decision the contending parties agree to accept.
6. Filing a breach of contract complaint
If there is no satisfactory response to your demand letter, nor any satisfaction after going through the “alternative dispute resolution”, then the next step would be to file a lawsuit. Depending on the amount of your damages, the suit can be filed in Small Claims, Limited Civil, or Unlimited Civil court.
Please contact Hackler Flynn & Associates if you need assistance with a breach of contract.
Whether you are just starting a brand new company, run a “mom & pop” business, or already have a large established corporate enterprise, we are here to grow with you and meet your legal needs.