A breach of contract is an unjustified failure to perform an absolute contractual duty, and a breach of contract has several legal repercussions. Black’s Law Dictionary defines a breach of contract as a “[v]iolation of a contractual obligation by failing to perform one’s own promise, by repudiating it, or by interfering with another party’s performance.” The Second Restatement of Contracts elaborates further: “Every breach gives rise to a claim for damages, and may give rise to other remedies.”
– What Law Governs a Breach of Contract? –
Generally, the common law governs contracts. However, the Uniform Commercial Code (the “U.C.C.”) governs contracts for the sale of goods.
– Has there been a Minor or a Material Breach? –
Before we can proceed to the legal repercussions of the breach, we must first determine whether the breach is minor or material. Several factors are considered in determining whether a breach is material or minor: 1) the amount of benefit received: the greater the extent received by the non-breaching party, the less material the breach; 2) the adequacy of damages: the greater extent to which the injured party may be adequately compensated, the less material the breach; 3) the extent of part performance: the greater extent the party failing to perform completely has performed or prepared to perform, the less material the breach; 4) the amount of hardship suffered by the breaching party: the greater the extent, the less material the breach; 5) negligent or willful behavior: the more negligent or willful behavior on the part of the party failing to perform, the more material the breach; and 5) the likelihood of full performance: the greater the likelihood that the party failing to perform will perform the remainder of the contract, the less material the breach.
A minor breach requires continued performance by the injured party and a suit for damages for defective performance. Conversely, if innocent party does not receive the substantial benefit of her bargain as a result of the breaching party’s failure to perform or defective performance, the breach is considered material. In the event of a material breach, the aggrieved party has a choice: either continue performance and treat the beach as a partial breach or stop performing and treat the breach as a total breach, thereby excusing the injured party’s counter performance and allowing for a right to damages.
– Remedies for Breach –
The following is a brief, albeit incomplete, overview of the available remedies for a breach of contract.
– Equitable Remedies –
There are two forms of equitable relief available for a breach of contract. One is specific performance, and the other is an injunction. Specific performance is a decree that orders the breaching party to render the promised performance. If damages are inadequate, the injured party may seek specific performance. Damages are generally considered inadequate when the subject matter of the contract is unique or rare. The rationale is that if the subject matter is rare or unique, damages will not put the non-breaching party in as good a position as performance would have, because even with the damages the non-breaching party would not be able to purchase substitute performance.
An injunction directs a party to refrain from doing a particular act. This remedy is often limited to employment contracts involving negative covenants where the defendant is sued by her former employer and is charged with breaching an employment contract by working for a competitor. Unique items that usually have specific performance remedies include the transfer of unique paintings and heirlooms, instances where gasoline is in short supply because of oil embargos, and land is always considered unique for purposes of specific performance.
– Damages –
The standard measure of damages is expectation damages, awarded based on the difference between the contract price and the current market value price at the time the contract is breached.
Other times, liquidated damages will be available if there was a provision in the contract which set the amount of damages in advance in the event of a breach. In order for a liquidated damages clause to be upheld by the courts, damages must have been difficult to ascertain at the time of contracting, and it must have provided a reasonable forecast of damages.
Reliance damages is an alternative measure of damages and is provided by the costs incurred by the aggrieved party in reliance on the contract. This includes out-of-pocket damages. Keep in mind that you cannot get both expectation and reliance damages, and expectation damages tend to be more rewarding for the aggrieved party.
Keep in mind that the non-breaching party cannot recover for damages that she herself could have avoided by reasonable efforts on her part. She has a duty to mitigate her damages. In the event that the plaintiff did not mitigate her damages, damages will be reduced by the amount that would have been earned through mitigation.