What is a breach?
A breach of contract is one party failing to perform his or her obligations according to an agreement. From here, the law looks towards whether the breach was “material”, which is defined as a substantial or serious breach that frustrates the entire purpose of the agreement. The materiality of the breach helps weed out insignificant claims and other less serious deviations from the terms of the contract, where the main purpose of the contract can still be achieved.
Prospective claimants considering hiring an attorney should first think about the materiality of the breach and consider whether the breach can be fixed through a simple discussion with the breaching party. Technical breaches can be found in the performance of almost any contract, so first, you should think about whether there is true remedy that would put yourself in the position contracted for, or if the remedy would be nominal and have no substantial effect.
What are the remedies? (Legal vs Equitable)
Remedies are separated into two categories, legal and equitable. Legal remedies consist of monetary rewards whereas equitable remedies provide non-monetary recoveries.
These legal remedies (or monetary damages) will typically come in the form of expectation damages where the nonbreaching party may recover in the amount of either of these damages. Alternatively, equitable remedies granted by a judge will come from specific performance, injunction, or restitution.
Expectation damages can be most clearly explained by a breach of contract for goods where there is a fixed number of goods at a fixed price. In order to explain expectation damages, we will use the following hypothetical contract: a mechanic has a valid contract with a manufacturer to supply the mechanic with 1,000 units of a certain spark plug for $1.50 per spark plug for a total of $1,500.
A breach will often occur simply because supplying these goods make is no longer convenient or profitable for the supplier. This then causes the nonbreaching party to need to find another source for the goods. Referring back to the mechanic example, the manufacturer breaches its contract when it notifies the mechanic that it will no longer perform its end of the contract. The mechanic may now go out and find a replacement supplier and recover any damages
The measure of expectation damages is calculated by the difference between what was promised by the breaching party and what the nonbreaching party replaces the goods contracted for with. When the breach occurs, the nonbreaching party should be placed in the position he or she would have been in had the breach never occurred. In our example, due to the breach of contract, the manufacturer may be liable for anything above the $1,500 that it contracted for with the mechanic. If the mechanic is only able to find a supplier of spark plugs for $3.50 per spark plug, then the manufacturer will have to reimburse the mechanic for this extra $2,000 the mechanic had to incur.
Equitable remedies often seem preferable to the nonbreaching party; however, equitable remedies are reserved for situations where monetary compensation will not adequately serve the nonbreaching party and are generally disfavored compared to legal remedies.
(1) Specific Performance
Specific performance is exactly what it sounds like, a court order that requires that the breaching party perform its end of the contract. Specific performance will only be granted where the contract involved the sale of a unique item. This unique item may be a particularly unique personal property, but more often, it will be a contract involving real estate because all real estate is considered unique.
Injunction is the flipside of specific performance; it requires that the breaching party stop doing something. The breach of contract in question, where injunction is the only remedy, is usually a contract for non-competition or non-solicitation by the breaching party.
Restitution focuses on compensating a party for the benefit conferred on the other party. This comes from the legal principle that one party should not be unjustly enriched through receipt of benefit regardless of whether the receiving party is the breaching or nonbreaching party. Restitution often comes up when a nonbreaching party receives goods that do not conform with the terms of the contract, but the nonbreaching party chooses to accept and keep the nonconforming goods because they are a suitable replacement for what they contracted for.
Working this into our spark plug example, this issue may arise where the manufacturer instead provided a cheaper spark plug that only costs $1.00 per unit. If the mechanic accepts the inferior spark plug, the manufacturer still breached the contract, but would be able to recover $1,000 from the mechanic for the value conferred, if he refused to pay.
Resolution of Contract Disputes
Resolution of contract disputes can either be settled out of court or be tried in court. While many claimants believe that taking their case to a judge is in their best interest, most will never see court. This is because the parties in dispute will almost always be able to realize their legal rights and remedies long before they have the opportunity to appear in court.
Settlement allows each party to voice what would be an acceptable result to put an end to what might be an unpleasant and time-consuming legal battle for results that may be identical to those provided by a judge. While some may sincerely believe that it is in his best interest to appear before a judge, it is undeniable that saving years of ongoing dispute by resolving a legal dispute out of court will benefit both parties. Due to this interest of time-efficient resolutions, attorneys looking towards the best interest of their clients will work to resolve cases before trial but will file the lawsuit to start the process of a lawsuit to start the countdown towards their day in court.
When deciding whether to hire an attorney, a risk-free course of action would be to set up a consultation with an experienced business attorney to discuss your damages and determine whether engaging the attorney would provide the opportunity for a suitable recovery. While no prior understanding of rights and remedies is necessary, it may be useful in understanding the degree of the breach and the type of remedy that you may be entitled to and give you more confidence going into a consultation with an attorney.
George Fowler is an associate at Henderson & Henderson, LLC. Contact him with any of your contracts needs at email@example.com.