This article is written by Khushi Agrawal, a student of Symbiosis Law School, Noida. In this article, she has discussed the concepts of breach of contract in detail.
Breach of contract is the actual failure or refusal of the contracting party to fulfil (or a clear indication of its intention not to fulfil) its obligations under the contract. A breach may be affected by-
(1) repudiation of obligations prior to the commencement of the contract,
(2) repudiation of obligations prior to the termination of the contract or
(3) conduct that prevents the proper performance of the contract (such as interfering with the performance of the other party). Infringement of a major term (condition) of the contract (called a ‘fundamental infringement’) entitles the aggrieved party to
- treat the contract as discharged,
- consider himself free from his own obligations under the contract, and
- sue the offender for damages resulting from the infringement.
Infringement of a minor term (warranty) allows suing for damages resulting from the infringement but does not allow any party to treat the contract as discharged except where the terms of the contract override this implied legal provision. Unlike ‘contract rescission,’ a contract breach does not retrospectively operate.
Elements of a Breach of Contract
To be successful in a breach of contract lawsuit, there is a certain breach of contract elements that must exist:
Existence of a Valid Contract
To claim a breach of contract, an actual, valid contract must be in place. It is not necessary to put a contract in writing as oral contracts are enforceable by the court system. However, three elements must be established to prove the existence of a valid contract-
Some discussion and agreement must have been made to provide goods or services in exchange for something of value. The intention to enter into an agreement or contract must have been there.
An agreement must be entered into on the essential terms for the exchange of goods or services for something of value. Written contracts make it easier to prove such terms as they document specific terms agreed by the parties.
Every party to an oral or written contract must have received something of value. In other words, each party has something to gain in a valid contract. One party’s promise to provide a good or service without receiving anything in return is void.
Furthermore, a contract written to cover the provision of goods or services that occurred in the past is not a valid contract. Before the exchange takes place, a contract must be entered into to show that there was an agreement or “meeting of the minds.”
Breach of the Terms of the Contract
Strictly speaking, a breach of contract occurs if any of the terms are broken. Not all terms are literally adopted, however, an order for a complaint to be brought to a standing, an infringed contract has to in fact be regarded as “substantial infringement” and detract from the value of the contract. Alternatively, the contract infringement has to change the result of the contract so fundamentally that the aggravated Party has the right to terminate the contract (a ‘substantial infringement’).
Actual Damages or Loss
To be successful in breaching a contract lawsuit, the grieved party must show that they have suffered some type of loss or damage as a result of the breach. Current damages or loss may take the form of loss of money, time loss, loss of chance or many more losses.
What happens after a breach of contract?
If an infringement or allegation occurs, one or both of the parties may wish to see that the contract is implemented under their terms or try to recover for any harm caused by the alleged infringement.
If a dispute arises over a contract and informal attempts at resolution fail, the next most common step is a lawsuit. The parties may be able to resolve the issue in the Court of Small Claims if the amount concerned is below a specific rupees figure.
Not only are courts and formal lawsuits the option for people and enterprises involved in contract disputes, but the parties may also agree to review the contractual argument by a mediator or may agree to resolve a contractual dispute through arbitration. These are two “alternative dispute settlement” options.
Types of Breach of Contract
A breach of contract occurs when the terms of a contract are broken. At least one party to the agreement does not keep its part of the deal. There are various types of contraventions:
Minor or partial contraventions
A partial breach occurs when some but not all of the contract terms have been fulfilled. The injured party may only sue for damages in this case.
If a Party does not do what it says in the contract, this leads to its destruction and makes that Party liable for violating the contractual damages. You may have the right to sue it, but only for “actual damages.” In the context of the Contract Restatement, the following must be shown to determine if a material breach happened:
- How badly the injured party is affected by the breach.
- How much the injured party can be paid according to the terms of the contract.
- How badly the other party broke the terms of the contract.
- How likely the other party will be able to perform the failed terms depending on his or her circumstances.
- How the other party acts in good faith and fair dealing standards.
One party can sue the other party for breaking the terms and possibly terminate the contract.
If a party fails, by the due date, to do what the terms say it will be an actual breach of a contract.
If one party ceases to fulfil its portion of the contract, which suggests that the agreement remains incomplete. For example, refusal of payment, lack of a product ordered, or the fact that one or more parties can not or will not fulfil their part of the deal. The violator may be sued and the other party may conclude the contract.
Both actual and anticipatory breaches can waste time and money.
Defenses to a Breach of Contract Lawsuit
As in all lawsuits, the defendant (the party being sued), has a legal right to offer a reason why the alleged breach is not really a contract breach or why the breach should be excused. It’s called a defense legally.
Fraud means “to know about the fact of misrepresentation or to hide a fact in order to make someone more to act to their own detriment.” If a defendant presents the defense, he says that the contract is not valid because the claimant has a failure or has not made a misrepresentation about material or important fact. It is because he makes a misrepresentation against a material offense. The defendant has to prove that the fraud is deliberate.
This happens when one person forces another to sign a contract through physical force or other threats. This can also invalidate a contract since both parties did not sign it from free will, a standard contractual requirement.
There are two types of errors in contract law: mutual error and unilateral error.
In the event of mutual mistake, both parties make an error in respect of the contract and it is usually a matter of whether the parties actually met. A question arises in such situations of the very existence of the contract. If the error changed the topic or the purpose of the contract substantially, the Court would not implement it.
A unilateral error occurs where only one party is wrong with the contract. Unilateral error is usually not the basis for contract cancellation. However, if one party was wrong or knew that the other party was wrong and did nothing to correct it, the court will probably not enforce the contract.
Statute of Limitations
Many types of cases have time limits imposed by law, deadlines by which a case must be brought and filed. A case of contract infringement may be dismissed if the defendant can show that the period of limitations has expired. The statutes of limitation cases are based on time limits that may vary according to the law of the individual State. The mentioned period is three to six tears for a written contract.
Remedies for a Breach of Contract
The other party to the agreement is entitled to relief (or a “remedy”) under the law when an individual or business breaches a contract. The main remedies for a breach of contract are:
- Specific Performance, or
- Cancellation and Restitution
Payment of damages (payment in one form or another) is the most common remedy for a breach of contract. There are many types of damage, including:
- Compensatory damages should be made to place the non-violator in the position that it was if the violation had not taken place.
- Punitive damages is the amount to be paid by the infringing party above and beyond the extent to which the infringing party would be fully compensated. Punitive damage is intended to punish an illegal person for particularly unlawful acts and is seldom granted when entering into commercial contracts.
- Nominal damages are token damages awarded when a breach occurred, but no actual loss of money has been proved to the non-breaching party.
- Specific damages previously identified in the contract itself by the parties, if the contract is broken, are liquidated damages. A reasonable estimate of actual damages resulting from a breach should be made of liquidated damages.
If the damage is inadequate as a legal remedy, the non-infringing party may seek an alternative remedy called specific performance. Specific performance by the contravening party is best described as the court-ordered fulfilment of the contractual duty. If the subject-matter of the agreement is a rarity or unique, and if the damage is not sufficient to a position that non-breakers as good as it had been when the violation has not taken place, specific performance may be employed as a remedy for breach of the agreement.
Cancellation and Restitution
A non-infringing party may cancel the contract and sue for restitution if the non-infringing party has provided a benefit to the infringing party. As contract remedy, “recovery” means that the non-infringing party is re-established in the pre-infringement position, while “cancellation” means that the contract will be cancelled and all parties will be relieved of any obligations under the agreement.
Difference Between a Material and Minor Breach of Contract
Contract breach may be material or minor. The obligations and solutions of the parties depend on the type of violation.
An infringement is a matter if something substantially different from that set out in the agreement is received by the other party because the violator does not fulfil a certain aspect of the contract. For instance, when a tennis ball box is sold in the contract and a football box is given to the buyer, the violation will be material. When an infringement is material, the non-infringement party is no longer required under the contract and immediately entitled to any remedies for the entire contract being infringed.
The company Revelations Perfume and Cosmetics sued the famous musician “Prince” and his music label in 2008, seeking $100,000 in damages for reneging on an agreement to help market their perfumes. In his 2006 album “3121,” the flamboyant pop star promised personal promotion of a new fragrance named by the company, and to allow the packaging of its name and likeness, Prince of the Nation.
Revelations asked the court to award more than $3 million in lost profits as well as punitive damages in its breach of contract complaint. However, the judge did not find any evidence that the pop star was acting with malicious intent and ordered him to pay almost $4 million in out of pockets for the cosmetics company. Revelations’ petition has been denied for damages to punitive and loss of profit.
- Macy’s v. Martha Stewart Living
Macy’s department stores filed a breach of contract complaint against Martha Stewart Living Omnimedia for signing an agreement with J.C. Penney is set up in February 2013 to create Martha Stewart retail stores in their retail stores. J.C. before the deal for $38.5 million, Penney bought a minority stake in Steward’s company. Martha Stewart’s retailers were to carry home goods, but Macy’s argued that it had been accorded exclusive rights to manufacture and sell certain Martha Stewart Living products in a 2006 agreement.
Macy’s asked the court to grant a preliminary injunction to stop Steward from breaching the contract while the court considered the matter. J.C. was ruled by a New York judge in June 2014 twelve years later. In fact, Penney had passed Macy’s domestic diva contract in an attempt to sell products with her name. During the J.C. The contract was invalidated by Penney, and no immediate financial breach of contractual damage was reached and the legal fee and the cost of the proceedings may be limited, as the judge ruled that the case had no cause for punitive harm.