Breach of Contract
To: Cindy Flynn
Matter: Breach of Contract (process of a lawsuit)
Contracts are an essential tool in any business. It is where two or more parties agree to perform or not perform certain actions. Contracts are legally binding and are enforceable by the courts. 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 broken their promise and breached your contract?
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.
- Minor Breach: This is a partial breach of the contract, where some immaterial provision of the contract was not performed. An example would be 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 for the landscaper to make corrections.
- Anticipatory Breach:This is a situation where a party can say the contract is broken when it becomes evident the other party will not execute his or her end of the contract within the allotted time. An example would be if you hired a painter to do your portrait. You want the portrait completed by February 1. However, the painter still has not started on January 31. You can try to collect monetary damages since it is not possible for the painter to complete the portrait on time.
- Material Breach: This is a failure of a party to perform the essential duties of the contract. This is a serious breach and allows the injured party to seek damages in court. For example, you hired a contractor to paint your home for $8,000. The contractor completed painting you home, but you have not paid the contractor.
- Fundamental Breach: This describes a breach so serious it allows the injured party to not only sue for damages but also terminate the performance of the agreement. An example is where you have a lease agreement to rent property. When you show up at the property, it has already been leased to someone else.
MAKE SURE YOU HAVE A CONTRACT
To be able to sue on the basis of a breach of contract, you must be able to 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 preson or business that ‘breached’ is responsible for the losses.
WRITE A DEMAND LETTER
Before commencing litigation, it is important to first write a demand letter. A demand letter outlines your claim. It is important to include the following when preparing the demand letter:
- The terms of the contract.
- Details of how the contact 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 avoid inconsistencies, errors and ensure the letter is complete.
WHAT ARE YOUR LEGAL REMEDIES?
There are many different types of remedies available for a breach of contract. However, some remedies may be specifically excluded in your contract. It is important to review your contract to determine if any remedies are excluded prior to commencing litigation.
Common monetary remedies include:
- Compensatory Damages – The breaching party pays money to reimburse costs and compensate for losses incurred.
- Consequential Damages – Awarded when all the parties to the contract were aware of the potential losses in case of a breach when the contract was signed or accepted.
- Liquidated Damages – A monetary damages 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. Punitive damages are rare and awarded when the defendants’ actions are malicious or offensive.
- Attorney’s Fees – Monetary damages 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 – The court may order the contract cancelled and any money returned. The effect is as if the contract never happened.
- Reformation – The court may have the contract re-written to better reflect the original intention of the parties.
ALTERNATIVE DISPUTE RESOLUTION
Look at 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 of disputes between two parties by an impartial third party, whose decision the contending parties agree to accept.
FILING A BREACH OF CONTRACT COMPLAINT
If there is no satisfactory response to your demand letter, nor any satisfaction after going through “alternative dispute resolution”, then the next step would be to file a lawsuit. Depending on your damages amount, the suit can be filed in Small Claims, Limited Civil, or Unlimited Civil court.
Please contact Hackler Flynn and Associates if you need assistance in your breach of contact matter.
Regardless of whether you are just starting a brand new company, run a ‘mom & pop’ business, or you already have a large established corporate enterprise with hundreds of locations across California, we are able to grow with you and meet your legal needs.