Everything You Always Wanted To Know About Contracts and Their Breaches
By definition, breach of contract means the violation of a contractual obligation. In other words, one party to the contract fails to live up to whatever was promised in the contract. Given that contracts make up a good portion of your life — especially if you are a business owner — the types of contracts you are involved in and the specific ways they can be breached are almost infinite.
Contract Type Examples
A contract is a legally binding agreement between two or more people. Your best interests consist of always putting your deals in writing although contracts can also be oral. Why? Because you run less chance of misunderstanding between the parties and consequently have a better chance of enforcing the contract provisions or receiving damages or other court help if and when the other party breaches.
Common types of contracts include the following:
- Supplier agreements
- Purchase orders
- Bills of sale
- Warranties
- Partnership agreements
- Noncompete agreements
- Nondisclosure agreements
- Employment agreements
- Joint venture agreements
- Franchise agreements
- Stock purchase agreements
- Independent contractor agreements
- Real property leases
- Equipment leases
Contract Breach Examples
There is a myriad of specific ways in which someone can breach a contract. However, they tend to fall into the following six categories:
- Failure to pay as, when and how promised
- Failure to perform as, when and how promised, such as delivering a guaranteed item two weeks late
- Refusal to perform (called repudiation)
- Indication by word or action the intention to breach (called anticipatory breach or anticipatory repudiation)
- Deliberate action in direct contravention to the contract, such as giving trade secrets to a competitor despite having signed a nondisclosure agreement
- Actions by the breaching party that interfere with your own ability to perform the contract
Contract breaches can be minor (immaterial) or substantial (material). In general, you can do little or nothing about an immaterial breach because it doesn’t affect you or your business all that much. Conversely, when the other party breaches the contract so severely that it defeats its whole purpose, this constitutes a material breach resulting in you or your company suffering substantial damage.
Factors that determine whether or not a breach by the other party is material include the following:
- The extent to which you will be deprived of the benefits you reasonably expected to receive from the contract
- The extent to which you can receive adequate compensation for your lost benefits
- The likelihood that the breaching party will cure his or her breach
- The extent to which the breaching party will suffer forfeiture
- The extent to which the breaching party failed to act in good faith or exhibit fair dealing practices
Breach of Contract Remedies
When the other party materially breaches one of your contracts, you can sue that person. Breach of contract represents a civil action, meaning that monetary damages and other civil remedies are the only things the court can give you if you prevail. In general, your breach of contract remedies consist of the following:
- Damages
- Specific performance
- Rescission
- Reformation
In the case of an anticipatory breach, you may petition the court for an injunction against the potentially breaching party to prevent him or her from following through with the anticipated breach.
The purpose of damages is to compensate you for what you have already lost and what you likely will lose in the future due to the breach. In other words, damages are supposed to “make you whole,” i.e., put you in the same position you would have been in had the contract not been breached.
Some contracts contain a liquidated damages provision that sets forth the amount of damages either party can obtain if and when the other party breaches. If your contract contains a liquidated damages clause, you cannot claim damages above the stated amount.
Specific performance is an equitable form of relief wherein the court orders the defendant to perform his or her contractual obligations. Courts only order specific performance in cases where damages cannot be calculated or would not be adequate to make the plaintiff whole.
Rescission is another equitable remedy that allows a contractual party to cancel the contract, thereby putting both parties back in the positions there were in had there been no contract in the first place. You usually do not have to go to court in order to rescind most contracts. One rescission example is when you buy a new vehicle, and the dealer gives you three days (or whatever period) to bring it back if you decide you don’t want it.
Reformation is yet another equitable remedy wherein the court basically rewrites the contract if you can prove that the other party deceived you or that the agreement the two of you actually made is different from what the written contract states.
Why You Need an Attorney
You might think that breach of contract is a simple and straightforward matter. After all, either the other party lived up to his or her contractual obligations or didn’t do so. Unfortunately, you would think wrong.
Contract law is one of the most complicated areas of the law, full of twists and turns that even the most sophisticated layman cannot be expected to know or anticipate. For instance, did you know that contracts must contain specific elements to be valid? In addition, you can rest assured that when you sue someone for breach of contract, that party will come up with reasons, called defenses, for why the actions or inactions in question don’t amount to a violation. The defendant may even counter-sue you for claimed damages of his or her own.
Only a knowledgeable, experienced contract law attorney knows the various ins and outs of contract law. In addition, different states have different laws pertaining to contracts and breach of contract lawsuits. Consequently, what you need to prove — also known as the elements of proof — for breach of contract in Alabama may well be different than what you need in Wyoming. Therefore, you don’t just need a contract generalist. You need a lawyer who keeps abreast of the contract laws in your specific state.
Work With an Experienced Local Lawyer
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