A contract is an agreement between two parties in exchange for a benefit to each. When one party fails to live up to its end of the bargain, the other gets hurt. In the business context, one party’s failure to perform can result in a breach of the contract, such as holding up supply lines. When that happens, equity requires that the parties be made whole.
If a party you or your business has contracted with isn’t living up to the terms of the agreement, the law is on your side. With over 20 years of experience representing clients in commercial and business litigation, Rosenblatt Law PC is your dependable resource throughout New York and New Jersey.
Elements of a Contract
A contract is a legally binding agreement between two or more parties that creates an obligation to perform or not perform a specified act. Every contract must contain a mutual agreement between the parties and must be a bargained-for exchange.
- Mutual agreement requires that there is a meeting of the minds between parties that are competent to contract.
- Bargained for exchange requires there must be something of legally sufficient value given in exchange for the obligation to perform or not perform. This is known as consideration. A promise without consideration does not create a contract.
Many types of contracts occur daily, such as a contract to purchase goods at a certain price or a contract to provide services like constructing a building. Although not all contracts are required to be in writing under a state’s statute of frauds, in business, it is always a good idea to memorialize the terms of the agreement.
Breach of Contract
Breach of contract occurs when one party to the contract does not satisfy the party’s obligations under the contract. Examples of breach include a contractor’s failure to construct a building to predetermined specifications or a client’s failure to pay for services provided. There are generally four different types of breaches: anticipatory breach, actual breach, minor breach, and material breach.
Anticipatory breach occurs when one party indicates it does not intend to fulfill its obligations under the contract before the time for performance. Even though a party is generally not in breach until the time for performance has elapsed, if a party communicates that it does not intend to perform, the other party can sue for anticipatory breach of contract. An example is a vendor that sends a letter indicating it will not provide the contracted for materials after payment is received.
Actual breach occurs when one party fails to perform its obligations under the contract and the time to perform has elapsed. An example is a builder that agrees to construct a building in 60 days but is only seventy-five percent done on the sixtieth day. The builder has not fulfilled its obligation under the contract. Another common example is an agreement to pay for services rendered. Failure either to provide the services as promised, or failure to pay for the services provided, is an actual breach of contract.
Minor breach occurs when a party fails to perform on a portion of the contract but that portion was either immaterial or eventually resolved. If a builder constructs ninety percent of the building on the sixtieth day and completes the remaining 10 percent on the sixty-first day. In this situation, unless time was of the essence, the subsequent curing results in a minor breach.
A material breach results when a party’s performance results in a different outcome than the one the parties agreed upon in the contract. For example, if a landlord contracts to have a 10 story apartment building constructed but the builder constructs a 2 story grocery store instead.
Damages for Breach of Contract
If one party breaches a contract, there are remedies to make the other party whole. Remedies come in the form of compensatory or expectation damages, punitive damages, and liquidated damages.
The goal of compensatory damages is to put the parties in the position they would have been if the breach of contract had not occurred. Generally, a party is either entitled to return of any value given as its part of performing under the contract or, in some cases, may be reimbursed for the extra expense of covering for the other party’s non-performance. One example is a refund for failing to ship goods as required by the contract. In the situation where it became more expensive to replace the goods, a party may recover the difference between the contract price and the replacement price from the breaching party as well.
Punitive damages are meant to punish a breaching party for, particularly egregious behavior. While punitive damages are rarely awarded in contract cases, they are essential to deter parties from failing to exercise good faith in contracting.
Liquidated damages are a predetermined amount of damages designated in the contract that a party may collect in the event the other party fails to perform. Liquidated damage clauses are a tricky subject as courts may be hesitant to find them enforceable if their purpose goes beyond compensation and instead acts as a punishment. To be upheld, the liquidated damages must (1) be approximately the same amount as what would make the non-breaching party whole, and (2) must be sufficiently certain to allow both parties to estimate the amount of damages at the time of contracting.
Mitigation of Damages
Often the law requires that the non-breaching party take reasonable steps to limit or mitigate the damages caused by the breach of contract. This might require selling goods at a lower price to avoid a total loss (with the compensatory damages being the difference in price and cost), or hiring another service provider at a higher cost (with damages amounting to those losses resulting from the breach). If you find yourself at the hands of a breaching party, it is important to discuss with a qualified attorney what options may be available and what steps, if any, the law may require as a result.
Pursuing Breach of Contract
Enforcing a contract is very technical. Many times contracts require a party to give adequate notice of default and if the procedures are not followed correctly, it can result in loss of claims. Furthermore, it is important that the non-breaching party act in good faith at all times. If you or your business is involved in a contract dispute, it is important to consult with a knowledgeable attorney to understand your rights under the contract.
Speak with a Commercial Business Attorney Today
Contracts are essential to running a business and keeping commerce flowing. If you are involved in a contract dispute, the outcome can cause substantial harm to you or your business. Rosenblatt Law PC understands how vital service contracts are to your continued operation and can make sure you are fully compensated for harms resulting in any failure to perform. Licensed in both New York and New Jersey, Rosenblatt Law PC offers sound advice and decisive action in any contract dispute.