Contracts form the foundation of all economic transactions. Whether involving global petroleum deals or weekly office cleaning services, each contract can be just as valid and enforceable. However, things don’t always go as planned. Therefore, when you rely on the other party to perform under a contract and they fail to do so, what should you do? In this guide we will discuss the elements of a breach of contract claim, the elements of a valid contract, and what types of damages may be available.
Elements of Breach of Contract Claim
Examining the elements of a breach of contract is always a helpful starting point. A breach of contract occurs when:
- There is a valid contract between the parties,
- You have performed your obligations under the contract,
- The other party has not performed their obligations under the contract, and
- You have suffered damages.
Although seemingly simple, each of these elements deserves further discussion so that you have a fuller understanding of how contract law works.
What Is a Valid Contract?
A valid contract does not always need to be in writing. Indeed, valid contracts can be oral or implied. On the other side of the coin, certain contracts must be in writing to be valid (e.g., contracts for real property, performance that requires a year or more, etc.). That all said, the Iowa test for a valid contract (oral or written) is:
- One party makes an offer,
- The other party accepts the offer,
- There is a meeting of the minds on the transaction, and
- Consideration is exchanged.
Again, we need to describe each of these four elements in a bit more detail. First, the offer must be clear and intentional, giving the other party an opportunity to accept it. Second, the acceptance must be unconditional—an acceptance with a condition is actually a counter-offer and not an acceptance. Third, to create a meeting of the minds, the parties must have come to the same agreement on the subject matter of the contract. Finally, “consideration” is a legal term that essentially means each party has given something up in exchange for a future benefit (e.g., payment of money, a promise not to do something, etc.).
You Performed Under the Contract
Before you can seek compensation for a breach of contract you need to prove that you performed all your obligations under the contract (or had a legal excuse not to perform). This point is important—if you breached the contract first, the other party can use that as a defense for their own failure to perform.
The Other Party Has Not Performed Under the Contract
This part of the test is essential to any breach of contract claim. A breach of contract means the failure to perform has deprived the non-breaching party of the benefit of the contract. Further, the types of breaches must be classified as a material breach or an immaterial breach. Whether a breach is material or immaterial is critically important to your claim and speaks to your own obligations under the contract. When a breach frustrates the purpose of a contract, it is a material breach. Conversely, a breach that does not frustrate the purpose of a contract is an immaterial breach. These distinctions are a bit vague so a list of examples may help. Material breaches would include:
- Non-payment of rent;
- Non-payment for goods; or
- Delivery of goods delayed by weeks.
These types of breaches usually destroy the benefit (i.e., the “essence”) of the contract. In other words, the non-breaching party does not get, in any form, what they bargained for. Conversely, examples of immaterial breaches would include:
- Paying rent a day late;
- Being slightly off on a payment amount; or
- Delivering goods a day late.
While these errors may be disruptive, they also do not frustrate the purpose of the contract (i.e., you will still get the results you expected when you entered into the deal in the first place).
Types of Breaches: Material Breach v. Immaterial Breach
Let’s be clear, any breach of contract is grounds for a lawsuit. One does not get to pick and choose what terms of a contract they wish to honor. That said, whether a breach is material v. immaterial has a significant bearing on your business’s rights and obligations. Generally, a material breach by one party excuses the other party to the contract from performing their contractual obligations. An immaterial breach does not excuse the non-breaching party from performing under the contract. Making the wrong determination can either open your business to a lawsuit for non-performance or lead you to waste resources on a dead contract.
Damages For Breach Of Contract – The Four Elements
The first question in any breach of contract lawsuit is, What are the actual damages? You must be able to quantify, in economic terms, how much the breach of contract has cost you. This cost can take the form of:
- Lost income,
- Lost business opportunities,
- Property damage, or
Thus quantifying your actual damages is essential to your claim. In addition, there are other types of damages you can seek, including:
- Reliance damages. If you ended up in a worse position because you relied on the other party’s promises, you can seek compensation.
- Specific performance. If money damages won’t fairly compensate you for your loss, then you can ask the court to order the other party to fulfill their contractual obligations.
- Liquidated damages. Sometimes a contract will include a fixed amount of “liquidated damages” as compensation for breach. This occurs when damages are difficult to quantify.
Finally, there are still rarer forms of damages, and an attorney can advise you on whether these other specialized damages might apply to your claim.
Get Help with Your Breach of Contract Claim
The top-rated business legal matters lawyers at 303 Legal, P.C., can help evaluate the elements of your breach of contract claim and advise you on the best course of action to get what you bargained for or make you whole. Contact us today to see how we can help you solve your contract issue.