The Ultimate Guide to Breach of Contract

When a breach of contract occurs, there is essentially a “broken” contract. A breach happens when one party to a contract fails to perform or refuses to act according to the terms of the contract without a legal or justifiable excuse.

What Type of Contract Do You Have?

There are numerous different types of contracts. Comprehending the type of contract you have formed will help you understand whether you have breached any rights or obligations under the contract.

Sales Contract
A sales contract is an agreement between parties regarding the transfer of property or assets. A sales contract exists to sell goods, services, or real property. Some sales contracts must be in writing to be enforceable in the event of a breach.

For instance, all sales contracts for the sales of goods $500 and over must be in writing to be enforceable. Additionally, the sale of real property must be in writing to be enforceable.

Lease Agreements
A lease is a contract between two parties for the privilege to use or inhabit the property. There are two major types of leases. They are residential leases and commercial leases. However, there may be lease agreements to use equipment or other goods.

Licensing Agreements
A license agreement is an agreement where the owner of intellectual property such as a copyright or patent grants another the right to use the intellectual property for their benefit.

An example of a licensing agreement is where a musician grants a commercial company to use their song for advertising a good or service. The musician would make royalties and payments for the use of the music. There is typically a term of use. For instance, the music may only be contracted for use with one good and for a definite time.

Employment Agreements
Employment agreements are contracts between an employer and worker for a term. In an employment agreement, the worker agrees to work for the employer for a time, performing specific tasks. Likewise, the employer agrees to pay the worker for the designated period outlined in the contract.

Non-Disclosure Agreements
A non-disclosure agreement typically exists to protect confidential information between an employee and employer. The non-disclosure agreement, or NDA, prohibits either party, usually the worker, from disclosing certain confidential information dictated by the contract.

Government Contracts
Government contracts are contracts where federal or state governments contract with private parties for services or property.

Option Contracts
An option contract is an agreement between the parties to the contract allowing one party to buy specific rights at a future date for a set and a specified amount of money. Examples of an option contract include a lease agreement with an option to buy the property.

Implied-in-Fact Contract
An implied-in-fact contract exists when no actual contract is found, but the parties’ conduct implies one to the contract. A contract can be found by conduct where the conduct of both parties is intentional, and each knows or has reason to know that the other party will interpret the conduct as an agreement to enter into a contract.

An example of an implied-in-fact contract would be when a patient goes to a physician’s appointment, and the doctor treats the patient. The patient’s conduct indicates that he would like to receive treatment from the doctor for what ails him. The doctor’s actions in diagnosing the patient indicate that the doctor agrees to see and diagnose the patient.

Third-Party Beneficiary
A third-party beneficiary contract exists where a party that is not an original party to the contract has a privilege to sue on the contract. The third party can sue on the contract, despite not being a named party in the actual contract, based on the legal theory wherein the third party was the intended beneficiary of the contract.

To prove the existence of a third-party beneficiary contract, the third party must show that they relied on or assented to the relationship. Once established, the third-party beneficiary can sue either the promissory or the promise of the contract.

Are There Different Kinds of Breaches?

There are four different ways that a breach of contract may be found:

1. Material Breach of Contract: A material breach, or major breach, materializes where a party to the contract ends up with something significantly different than what was contracted for. A material breach generally provides that the non-breaching party is not required to perform their end of the bargain and has the privilege to seek a remedy from the breaching party.
2. Minor Breach of Contract: A minor breach of contract, or a partial breach, appears where one party fails to perform some part of the contract even though the specified item or service was delivered. For instance, if a contractor contracted to complete a remodel on a particular day, however, the contractor completes the project the day after, this would be considered a minor breach.
3. Anticipatory Breach of Contract: Anticipatory Repudiation, or anticipatory breach of contract, ensues when one party announces, before their time to perform under the agreement, that they do not intend to perform under the terms of the contract.
4. Actual Breach of Contract: An actual breach of contract ensues when one individual fails to perform according to the terms of the contract. An actual breach may also be found where one party performs incompletely.

What Remedies Can I Seek?

There are typically two remedies you can seek for a breach of contract: damages and equitable remedies. Damages are monetary awards. Damages typically cannot be speculative. Equitable remedies are awarded when a monetary award or damages would be insufficient to remedy the plaintiff properly.

The following are different types of damage awards:

• Compensatory Damages are damages for a monetary amount that compensates the non-breaching party for the breach. They are intended to make the non-breaching or injured party “whole.”

There are two types of compensatory damages:

• Expectation Damages: Expectation damages are damages that intend to cover what the non-breaching party would have received had the contract been fully performed. These may be based on the contract itself or market values.
• Consequential Damages: Consequential damages reimburse the non-breaching party for indirect damages from the breach. These may include lost profits for the breaching party’s failure to comply with contract terms.
• Liquidated Damages are damages stated in the contract as a consequence of failure to carry out the terms of the contract. Liquidated damages are usually included in a contract if damages would be too hard to quantify in the event of a breach. Courts will not award liquidated damages if the amount is inappropriate, as it may be seen as punishment for the breach.

Punitive damages are damages intended to punish the breaching party. Punitive damages are not awarded in contract cases.

Nominal damages are awarded when the injured plaintiff does not incur a monetary loss. These damages are usually awarded for showing that the court agrees that the non-breaching party was the “winner” in the case.

Restitution is based on the theory of unjust enrichment. Unjust enrichment is when the breaching party has benefitted from the contract before breaching the contract. In these cases, the court awards the non-breaching party the benefit the breaching party has received under the contract.

Specific performance is a court order requiring a party to perform an act or refrain from performing. In the case of very specific goods, the court may order specific performance mandating the party that makes and delivers the specific goods to make and deliver the goods to the non-breaching party.

Reformation occurs when the contract fails to reflect the contracting parties’ true intention. This typically happens in the event of a mutual mistake of the parties. The court will then rewrite the contract to reflect the parties’ true intention.

Rescission occurs when the court rescinds or cancels the contract. A new contract may be created in its place. Rescission is usually awarded in cases of fraud.

Do I Need a Lawyer for My Breach of Contract Lawsuit?

Contract violations can be very complex. Suppose you are being sued as the breaching party or seeking relief as the non-breaching party. In that case, it is important to seek the legal counsel of an experienced contracts lawyer who can aid in navigating the difficult road ahead. Your attorney can advise you of your rights and represent you in court if a lawsuit is filed.