Understanding Business Breach of Contract
Defenses to and Requirements of a Breach of Contract Lawsuit
"Breach of contract" is a legal term that describes the violation of a contract or an agreement that occurs when one party fails to fulfill its promises according to the provisions of the agreement. Sometimes it involves interfering with the ability of another party to fulfill his duties. A contract can be breached in whole or in part.
Most contracts end when both parties have fulfilled their contractual obligations, but it's not uncommon for one party to fail to completely fulfill their end of the contract agreement. Breach of contract is one of the most common reasons contract disputes are brought to court for resolution.
The judge generally will have seven questions about the suit:
- Was the contract valid?
- What did the contract require of the parties?
- Was it modified?
- Has the plaintiff demonstrated a breach?
- Was the breach material to the contract?
- Is the breaching party legally allowed to not abide by the contract?
- Were there damages?
Law vary significantly by state, so there may be other requirements to consider depending on the location. Always review your case with a lawyer before proceeding with any legal action.
Types of Breach of Contract
Breach of contract can be material, partial, or anticipatory.
- A material breach is one that is significant enough to excuse the aggrieved or injured party from fulfilling their part of the contract.
- A partial breach is not as significant and does not normally excuse the aggrieved party from performing their duties.
- An anticipatory breach is one in which the plaintiff suspects that the offending party might breach a contract by doing or failing to do something that shows their intention not to complete their duties. Anticipatory breaches can be very difficult to prove in court.
Breach of Contract Defenses
As in all lawsuits, the defendant (the party being sued) has a legal right to offer a reason why the alleged breach is not really a breach of contract or why the breach should be excused. In legal terms, this is called a defense. Below are five common defenses against a breach of contract.
This means "knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment." When a defendant presents this defense, they're saying that the contract isn't valid because the plaintiff failed to disclose something important or because they made a false statement about material or important fact. The defendant must establish that the fraud was deliberate.
This occurs when one person compels another to sign a contract through physical force or other threats. This, too, can invalidate a contract because both parties did not sign from their own free will, which is a standard contractual prerequisite.
This is similar to duress. It means that one party had a power advantage over the other and that they used that advantage to force the other to sign the contract.
An error committed by the defendant can't invalidate a contract and take away a breach of contract case, but if the defendant can prove that both parties made a mistake about the subject matter, it might be enough to invalidate the contract and this would serve as a defense.
Statute of Limitations
Many types of cases have time limits imposed by law, or deadlines by which a case must be brought and filed. A breach of contract case can be thrown out of court if the defendant can show that the statute of limitations has expired. The statute of limitations is set by the laws of individual states, so they can vary. They tend to average from three to six years for a written contract.
Breach of Contract Remedies
The plaintiff can be made whole in several ways if the other party is found to be in breach of a contract. In legal terms, this is called a remedy, and the most common remedy when one party is found to be in breach of a contract is a monetary payment.
Some other common remedies for a loss resulting from a breach of contract include damages and injunctions. Damages are amounts of money that compensate the victim for any actual loss he suffered. Punitive damages involve extra money a court might tack on as a form of punishment if the breach of contract was particularly egregious and intentional.
An injunction is an order by the court that requires the guilty party to stop doing whatever action is causing damage to the other.
A court might also order the rescission (the cancellation) of the contract. Sometimes the plaintiff has been so badly damaged by the breach that the injured party is allowed to rescind or terminate the deal.
Contract Breach Remedy
See an attorney if you think that the party you've entered into a contract with has breached it in some way. Law is intricate and small details of your case—things that you don't think are related or are a particularly big deal—can make a significant difference. Only a lawyer will be able to tell you if you have a strong case before you spend time and money launching into a lawsuit on your own—one that you could lose because of misunderstanding or an error.
And, of course, if you're accused of breaching a contract, seek legal help to sort out the details of your case and to help you establish a defense. Breach of contract is not a cut-and-dried situation, so it will take a professional to help you determine where you stand.
Warning: The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law. For current tax or legal advice, please consult with an accountant or an attorney.