When any party to a contract, whether oral or written, fails to perform any of the contract’s terms, they may be found in breach of contract. While there are many ways to breach a contract, common failures include failure to deliver goods or services, failure to fully complete the job, failure to pay on time, or providing inferior goods or services. In other words, a breach of contract is a broken promise to do or provide something. To explore this concept, consider the following breach of contract definition.
Definition of Breach of Contract
1. An unjustifiable failure to perform terms of a contract.
2. A violation of contract through failure to perform, or through interference with the performance of the contractual obligations
Among the most common causes for lawsuits in the U.S., breach of contract occurs in many ways. The law offers a variety of remedies for each such breach, designed to make the injured party whole. Court-ordered remedies for breach of contract cases are not meant to punish the breaching party, but to return the injured party to the position he would be in if the breach had not occurred.
• Partial Breach
A partial breach, or failure to perform or provide some immaterial provision of the contract, may allow the aggrieved party to sue, though only for “actual damages.”
A homeowner hires a contractor to put a pond in his backyard, showing the contractor the black liner her would like installed under the sand. The contractor instead installs a blueliner of the same design and thickness, which is totally hidden from view. The contractor may have breached the precise terms of the contract, but the homeowner cannot ask that the contractor is ordered to take out the pond and start over with the black liner.
The homeowner could ask that the contractor is ordered to refund the difference in price between the requested black liner and the installed blueliner. In this case, because the colour of the liner has no effect on functionality, and the price was basically the same, the difference in value, or “actual damages,” is zero.
• Material Breach of Contract
Failure of one party to perform his obligations under the contract in such a way that the value of the contract is destroyed exposes that party to liability for breach of contract damages. For example, if the contractor in the above example had used thin plastic not intended for the rigors of maintaining a pond, which could not be expected to last as long as the pond liner, the homeowner might recover the actual cost to correct the material breach, which would include removing the pond and replacing the liner.
A material breach of contract may relieve the aggrieved party of his own obligations under the contract, and give him the right to sue for damages. Such a total breakdown of the material provisions of a contract may be referred to as a “fundamental” or “repudiatory” breach.
• Anticipatory Breach of Contract
Anticipatory breach, also known as “anticipatory repudiation,” occurs when one party to a contract stops acting in accordance with the contract, leading the other party to believe he has no intention of fulfilling his part of the agreement. In this case, the breaching party may give such an impression by his actions, or failure to act, such as failing to produce an ordered item, refusing to accept payment, or somehow making it obvious that he cannot or will not fulfil the terms of the contract. An anticipatory breach of contract enables the non-breaching party to end the contract and sue for breach of contract damages without waiting for the actual breach to occur.
Jane agrees to sell her antique sewing machine to Amanda, and the two agree on the purchase price of $1,000, the sale to occur on May 1st. On April 25th, Amanda tells Jane that she cannot come up with the money on time. Following this communication, Jane can reasonably assume that Amanda is in anticipatory breach. This enables Jane to sell the sewing machine to someone else, or potentially file a lawsuit against Amanda for breach of contract.
• Specific Performance
In certain cases, an aggrieved party may not be made whole through the award of monetary damages. He may instead request the court to order “specific performance” of the terms of the contract. Specific performance may be any court-ordered action, forcing the breaching party to perform or provide exactly what was agreed to in the contract. Specific performance is most often ordered in a contract involving something for which a value is difficult to determine, such as land or an unusual or rare item of personal property.
Example Breach of Contract Cases
Courts in the United States are virtually inundated with breach of contract cases. Small and large, the decisions in such cases shape the way American’s do business every day.
Revelations Perfume and Cosmetics Inc. v. Prince Rogers Nelson 1
In 2008, the Revelations Perfume and Cosmetics company sued the famous musician “Prince” and his music label, seeking $100,000 in damages for reneging on an agreement to help market their perfumes. The flamboyant pop star had promised to personally promote the company’s new perfume named after his 2006 album “3121,” and to allow his name and likeness to be used in the perfume’s packaging. Prince then refused to grant interviews related to the project and refused to provide a current photograph for a press release.
In its breach of contract complaint, Revelations asked the court to award more than $3 million in lost profits, as well as punitive damages. The judge found no evidence, however, that the pop star acted with malicious intent, and ordered him to pay nearly $4 million for the cosmetics company’s out-of-pocket expenses. Revelations’ request for punitive and loss-of-profits damages was denied.
Macy’s v. Martha Stewart Living 2
Macy’s department stores filed a breach of contract complaint against Martha Stewart Living Omnimedia for making an agreement with J.C. Penney for the creation of Martha Steward retail stores within their retail stores beginning February 2013. Prior to the deal, J.C. Penney had purchased a minority stake in Steward’s company for $38.5 million. The mini-retail stores were to carry Martha Stewart home goods, however, Macy’s argued they had been granted an exclusive right to make and sell certain Martha Steward Living products in an agreement signed in 2006.
Macy’s asked the court to grant a preliminary injunction to stop Steward from breaching the contract while the court considered the matter. Twelve years later, in June 2014, a New York judge ruled that J.C. Penney had indeed stepped over Macy’s contract with the domestic diva in its attempt to sell products bearing her name. While the J.C. Penney contract has been nullified, monetary breach of contract damages was not immediately decided and may be limited to the legal fees and costs of the lawsuit, as the judge decided the case did not warrant punitive damages.
BREACH OF CONTRACT ELEMENTS
To be successful in a breach of contract lawsuit, there is a certain breach of contract elements that must exist:
The existence of a Valid Contract To claim breach of contract, there must be an actual, valid contract in place. It is not necessary for a contract to be put in writing, as oral contracts are enforceable by the court system. To prove the existence of a valid contract, however, three elements must be established:
• Offer –
Some discussion and an agreement to the provision of goods or services in exchange for something of value must have been made. There must have been the intention to enter into an agreement or contract.
• Acceptance –
An agreement to the essential terms for the exchange of goods or services for something of value must be entered into. Written contracts make proving such terms easier, as they document specific terms to which the parties have agreed.
• Consideration –
Each party to an oral or written contract must have received something of value. In other words, in a valid contract, each party has something to gain. A promise by one party to provide a good or service without receiving anything in return looks a great deal like a gift, which is not enforceable.
In addition, an agreement written to cover the provision of goods or services that occurred in the past is a not valid contract. A contract must be entered into before the exchange takes place, to show there was an agreement, or “meeting of the minds.” 3
BREACH OF THE TERMS OF THE CONTRACT
Strictly speaking, a breach of contract occurs if any of the terms are broken. Not every term is taken literally, however. To warrant the filing of a lawsuit, a breach of the terms of the contract must actually detract from the value of the contract, is considered a “material breach.” Alternatively, the breach of contract must change the outcome of the agreement in such a fundamental way, that the aggrieved party has the right to terminate the contract (a “fundamental breach”).
• Actual Damages or Loss
To be successful in a breach of contract lawsuit, the aggrieved party must prove that they have suffered some type of loss or damages as a result of the breach. Actual damages or loss may be in the form of money lost, time lost, loss of opportunity, or a host of other losses.
• Breach of Contract Damages
Generally speaking, the amount of monetary damages a party can recover in a breach of contract case is the amount it would take to make them whole. For instance, the actual monetary value of the goods or services that were to be provided. In a case where a monetary award would not make the aggrieved party whole, an order for specific performance might be made. Alternatively, the aggrieved party can ask the judge to cancel or void the contract, restoring them to the position they were in before entering into the contract.
In the rare breach of contract lawsuit where the aggrieved party can prove that the breach was an intentional attempt to mislead or defraud, the court may order the breaching party to pay an additional monetary sum as “punitive damages.” In any award of damages for breach of contract, the court is likely to order the breaching party to pay the legal fees and expenses of the aggrieved party.
• Filing a Breach of Contract Complaint
A party to a contract dispute who feels the other party is in breach of the contract should provide a breach of contract letter to the breaching party that he will be taking action for breach of contract. This is the first, formal step to resolving the issue. Sending a dated breach of contract letter outlining the problem puts the other party on notice they need to do something to comply with their part of the agreement.
If it becomes necessary to file a lawsuit, providing a copy of the letter, and all correspondence with the opposing party, to the court, helps prove the case. While many people choose to file their breach of contract complaint in Small Claims Court, those involved in high-value contract disputes should consult an attorney experienced in contract cases. 5
RELATED LEGAL TERMS AND ISSUES
• Actual Damages –
Money awarded to compensate someone for actual monetary or property losses. Also referred to as “compensatory damages,” the amount of money awarded is based on the proven loss, injury, or harm proven by the plaintiff.
• Punitive Damages –
Money awarded to the injured party above and beyond their actual damages. Punitive damages may be awarded in cases where the defendant’s actions in regard to the case are malicious, or so reckless as to give a reasonable person pause. Punitive damages, also referred to as “exemplary damages,” are ordered for the purpose of punishing the wrongdoer for outrageous misconduct in a civil matter. 6
• Specific Performance – An equitable remedy in which the court compels a party to a contract to perform duties agreed to in the contract.
Breach of Contract Notices in India is subject to the (Indian) Contract Act, 1872, because the underlying contracts for personal or business transactions are often subject to the said Act. Damages or costs which have been caused by the breach will be governed by the contract read with the provisions of the Contract Act.
WHAT IS A BREACH OF CONTRACT NOTICE?
A notice of a breach of contract notifies the counterparty to a contract that they have breached the contract by not upholding their end of the bargain. In such cases, it becomes necessary for one of the parties to the contract to give notice to the other explaining in detail how they have failed to fulfil the terms of the agreement. This is the first formal step in resolving contractual disputes. Also referred to as a type of demand letter, a notice of breach of contract letter should strictly adhere to any terms in the contract that discuss the requirements for notice of breach of contract. The breach of contract notice also lays out the actions that are to be taken in either fixing the problem or terminating the contract and paying compensation for damages incurred. While some notices are specific in their language, clearly laying out a detailed course of action that is to be followed and a timetable within which the problems are required to be fixed, other notices are more general in nature, primarily acting as an invitation to talk things over and mutually fix the breaches.
If you’re in a contract dispute because you think the other party isn’t living up to their side of the bargain, providing a notice of breach is the first formal step in resolving the problem. The notice, generally in the form of a letter (sometimes referred to as a “demand letter”), explains why you believe there has been a breach (a failure to perform under the contract) of the contract (that is, what the other party did or didn’t do), and lays out the actions that must be taken next, either to fix (“cure”) the problems or to end the contract and compensate for the damage. Some notices are quite specific, laying out a detailed course of action and timetable for making things right. Other notices are less specific, serving primarily as an invitation to talk things over.
NOTICE OF BREACH: WHAT TO INCLUDE
Here’s a list of what you should include when sending a notice of the breach in a contract dispute.
• Make the date clear.
One important function of the notice is to create a record of the date when the breaching party is officially told of the breach. That date may be important if the dispute ends up in court. Before sending the notice, the non-breaching party should confirm that the notice is going to the right person, via the proper method.
• Check the notice clause.
Contracts often have a clause–commonly referred to as a notice provision–setting forth contact information for each party and how notices should be communicated. For example, notices may have to be communicated by email, fax, or overnight mail. Failing to follow these procedures may affect each party’s rights. For example, a notice sent to the wrong address or by the wrong method may not “count” as notice of the breach, which gives the breaching party more time to cure the problem.
• Describe the breach.
The notice must indicate what part of the contract was breached. A breach — a failure to perform under the contract — usually comes in one of three flavors: (1) the other party failed to perform (for example, you haven’t been paid or haven’t received the goods you were promised); (2) the other party said that it will not perform its obligations in the future, or (3) the other party has made it impossible for you to perform your obligations under the agreement (for example, you were hired to modify a software program, but the company that hired you won’t give you the code you need to do the work).
No matter why the breach occurred, you will need to identify which clauses of the contract are affected and list them in your letter. If more than one section has been breached, list all of them, leading with your strongest claims
• Make sure it’s a “material” breach.
You may provide notice for any type of breach, but keep in mind that courts are most concerned with “material” breaches–actions by the other party that destroy the value of the contract. Although you can give notice of a “non-material” breach (also known as a “partial breach,” or “immaterial breach”), a non-material breach usually will not end the agreement. (Learn more about “material” breach of contract in Nolo’s article Breach of Contract: Material Breach)
• Offer a “cure.” In some cases, it may be too late to fix the problem. If so, the notice serves to terminate (cancel) the agreement and to seek damages. Much of the time, though, a breach of contract notice seeks to resolve contractual problems while keeping the agreement in effect. For that reason, the letter often provides a period of time during which the breaching party can fix (“cure”) the breach. Most contracts include a clause establishing the cure period–often 30 days. Even if it seems like there’s no point in offering a cure period, it may be in your best interest. The other party may be unaware of the problem or may have run into temporary setbacks that make compliance with the contract terms difficult.
• Avoid an emotional tone.
The breach of contract notice should have a dispassionate, business-like tone. Remember, this letter–like all correspondence preceding a lawsuit–could well become an exhibit to papers filed with the court. A judge or jury won’t look kindly on a letter that is bullying, exaggerated, or melodramatic. Just stick to the facts.
• Try to work it out.
Before you send the notice–or perhaps at the same time–you should try to fix the problems informally. This can help you save time, money, and perhaps even your business relationship. Don’t use the notice solely to intimidate the other party as some sort of business strategy–for example, to threaten a lawsuit in order to get out of a deal that’s not as lucrative as you expected. That approach often backfires, especially if you’re bluffing (and are then drawn into a long legal battle).
Finally, if you and the other party both want to formally end (“discharge”) the agreement, it is best to do that by entering into a separate agreement terminating the contract. This is often done using a mutual rescission agreement. But if one or both parties have already performed some of the contractual obligations–for example, a home has been partially constructed–you will need a more detailed settlement and release.
THE RESPONSE TO A NOTICE OF BREACH
After you send your notice of breach, be prepared for one of these responses from the other side of the contract:
• No response.
If you don’t hear anything within two weeks, send the second letter referring to your earlier letter. If you don’t receive a response to the second letter, it’s time to consult with an attorney. Perhaps a letter on a lawyer’s stationery will have better results. If not, determine (with your attorney’s advice) what your next steps should be. (Use Nolo’s Lawyer Directory to find a contracts attorney in your area.)
• Get lost.
You may receive a response telling you basically to “take a hike” or something equivalent. For example, “we have reviewed your letter and have determined that our company is not in breach of the agreement.” You should consult with an attorney before you fire off an angry response; it’s always possible that the responding party is correct.
• Let’s talk.
If the responding letter invites you to discuss the matter, then you may be on your way to resolving the problem. You may wish to consult an attorney for advice on how to proceed, particularly if you expect to reach a written settlement with the other party.
• You’re right; we give up.
Congratulations. You won. What happens next depends on how you want to end things. Depending on the scale or type of breach, you may want to use a formal settlement agreement. Again, an attorney can help you to wrap things up properly. 7
1.2012 NY Slip Op 50721(U) Decided on April 12, 2012.
2. 2015 NY Slip Op 01728 Decided on February 26, 2015
8. https://www.priorilegal.com/legal-forms-and-documents/notification-of-breach-of-contract (Reply to breach notice)
9. Contract and Specific Relief, Avtar Singh, Eleventh Edn, Eastern Book Company, 2013.