If you or someone you know enters into any business agreement, make sure there is a valid contract understood by all the parties involved. Why? A breach of contract claim is one of the most common claims in business litigation that could be avoided with a clearly defined contract at hand.
Two parties can choose to settle a breach of contract by:
- Dissolving the business relationship;
- Voiding the contract and not providing complete services or full payment; or
- Seeking damages.
What Is Breach of Contract?
A contract is usually a written agreement between two or more parties that states exactly what each party is responsible for. This might include who is responsible for attorney’s fees in the event of a lawsuit or how one party can recover damages for a partial breach or full breach. The whole contract usually ends with a section for breach of contract requirements and may also have a liquidated damages provision.
The more precise and detailed the contract terms are, the easier it will be to prove each element of a breach of contract, should a breach occur. It will also be easier to obtain compensation for damages.
Business is all about relationships, and those relationships are defined by contracts. The start of a new business relationship – and...
If you don’t have a written contract or your contract cannot provide the foundation you need for a claim, it’s in your best interest to reach out to an attorney and see what other legal avenues are available to resolve the situation.
Types of Breaches
Different types of breaches could constitute legitimate claims for breach of contract:
- Partial performance: When a party performs some but not all of his or her obligations under the contract.
- Acting in bad faith: When a party does not act in good faith such that the other party can be released from his or her obligations.
A graphic designer and a small business owner sign a contract. The contract provides that the business owner will pay the graphic designer to create a new business logo within two weeks for $500.
A few days after signing the agreement, the graphic designer has a family emergency and contacts the small business owner to let him know that she can no longer complete the task at hand. They both agree to void the contract and return any money currently held in escrow back to the small business owner. Now the small business owner is free from any obligation to work with that graphic designer and can find someone else.
The graphic designer sends over an initial sketch a few days after signing the agreement. She has put in 10 hours of work so far. The small business owner decides he doesn’t like it, and instead of negotiating or asking for edits, he wants to cancel the contract. So the parties agree that the small business owner will pay the graphic designer for the 10 hours put into the service so far but will cancel the contract after that.
The graphic designer sends over the initial sketch one week after signing the agreement. The small business owner approves. The graphic designer moves forward and sends the final logo within the required time frame. The small business owner, however, does not pay the graphic designer. The graphic designer sends requests for payment, invoices, late payment reminders, emails, and phone calls for the next two months, trying to collect on the payment. Eventually, the graphic designer hires an attorney to represent her in a breach of contract case.
As evidenced by the three examples above, numerous situations can give rise to a breach of contract.
5 Elements of Breach of Contract
There are five key elements to a legitimate breach of contract claim. Some aspects of these elements will change depending on the state in which the contract was formed, but they will generally remain the same.
1: You have a legitimate contact
First, you have a valid contract. The contract’s legitimacy usually depends on whether there are signatures from all parties involved and whether the terms of the contract are expressly stated, including the rights and responsibilities of the parties.
2: Both parties agreed to the terms of the contract
The second element is that both parties agreed to the contract terms. This usually requires signatures from all parties involved as well as dates. Depending on the type of contract, some states may require the contract to be notarized. If you are unsure of what requirements apply to you, consider contacting an attorney for guidance.
3: You performed your part of the contract or had a good reason not to
The third element is that you performed your part of the contract or had a legitimate reason not to. If you had a legitimate reason not to perform on your end, the reason will generally be specified in the written contract. Otherwise, you will need to prove, based on the language of the written agreement, that you followed exactly what you were required to do.
- If, for example, you have an accounting contract under which you are to provide accounting services, you must be able to prove that you provided those services.
4: The other party failed to perform his or her part of the contract without good reason
The fourth element of a breach of contract claim is that the other party’s action constituted a material breach of the terms. Using the example above, you must prove that you provided accounting services but the other party failed to pay you, as required in the valid contract.
5: The other party’s failure to perform caused you damages
Finally, the most important of all elements of a breach of contract claim is that the other party’s failure to perform under the contract caused you to suffer damages. Aside from having a legitimate contract and nonperformance by the other party, you must be able to prove that you suffered damages as a result, which is usually monetary. This is the key element that will determine the success of your claim.
If you consider the first two breach of contract elements above with the graphic designer and the small business owner, neither party suffered any significant damage. However, in the last example, Situation C, the loss of income that the graphic designer sustained could have been substantial. Her damages might have included being unable to pay certain bills as a result of facing late payments or having services turned off.
On the flip side, if the small business owner had paid but the graphic designer never delivered on the logo, the business enterprise could have suffered significant damage, e.g., the business could have been prevented from capitalizing on the new logo for marketing purposes or for a new launch of a product or service. In this situation, the graphic designer’s breach was a substantial factor in bringing about the harm suffered by the business owner.
Can an Oral Contract Be Breached?
This depends on where you live, but generally, as contracts can be written, oral, or both, the answer is yes. There are different state laws pertaining to a breach of a written contract and a breach of an oral contract.
- If you are unsure of what the state law is in your area, you can research texas law or the state that is relevant to your contractual obligations.
- Alternatively, you can consult an attorney through an initial consultation to verify whether your situation qualifies for a breach of contract claim.
Defenses for Breach of Contract
The breach of any contractual obligation, in and of itself, may not be enough to support a breach of contract cause of action. There might be other factors at play that could excuse the partial performance or complete non-performance of a contract.
In this regard, certain legal defenses are available against a breach of contract claim. Every case is unique, which is why you should strongly consider consulting an attorney to verify whether you have a legitimate defense if you are faced with a breach of contract action.
Some common defenses include:
- There was no valid contract in the first place. Therefore, no breach took place.
- The contract was unenforceable (perhaps because both parties did not sign it).
- Damages were non-existent or minimal. This may occur when there was a valid contract and a breach, but it didn’t harm the other party (think of Situation A above).
- There is a statute of limitations for the claim, and it expired.
- There was fraud involved in the contract, such as a party signing a contract based on false misrepresentations made by the other party. The fraud will excuse the performance by the party who was unaware of the misrepresentations.
- The obligations in the contract were impossible to perform. For example, if a new homeowner sues a construction company for breach of contract based on the company’s failure to build a sauna using a specific type of wood, the construction company could claim that the wood was legitimately unavailable due to economic sanctions and therefore, it was impossible to build the sauna using that wood.
A breach of contract case represents any situation in which one or more parties violate the terms of an agreed-upon contract. Should this happen- to you, rest assured that you as the injured party have a legal recourse to file a claim for breach of contract. In order to present a viable claim, be prepared to demonstrate the existence of a valid contract, all parties’ agreement to the terms of the contract, one party’s failure to perform his or her contractual duties, and that the failure to perform directly resulted in damages. Once these top five elements are proven, you are on your way to a successful claim for breach of contract.