If an individual is successful in their breach of contract claim against the party that breached the contract, then they will be able to recover specific remedies and damages in accordance with the contract laws of their state. However, that person must first be able to prove all of the required elements in their breach of contract claim, including that there was a valid contract.
Although the exact legal definition for what is considered to be a valid contract will differ by state, in general, a contract is a document that records an agreement between two private parties which creates mutual legal obligations and provides certain legal rights. Importantly, a contract can be either oral or written. However, oral contracts are often more challenging to enforce. Further, some contract must be in writing in order to be considered valid.
A breach of contract is what occurs when a party to a valid contract fails to fulfill their duties and obligations under the terms of the agreement. In other words, the terms of a contract guide the parties to the contract as to what they must do, and how they must do it, in order to maintain their end of the contract.
Then, if one party to the contract does not adhere to the terms of the contract, they will be considered to be breaching that contract. As a result, the non-breaching party will then be allowed to take legal action and can file a civil lawsuit against the breaching party for damages that they suffered from the breach.
Contract breaches can occur in a variety of different contexts, including a partial breach or a complete breach. A court will generally assess whether the breach was substantial or minor, as this helps the court determine what damages for breach of contract are available.
In general, there are three main ways in which a party may be held liable for a breach of contract include:
- Anticipatory Breach: Also known as an anticipatory repudiation, an anticipatory breach occurs when the breaching party tells the non-breaching party that they will not be fulfilling the terms of their contract.
- Then, once the other party has been notified of the breach, they may sue for breach of contract;
- Minor Breach: A minor breach of contract is what happens when a party fails to perform a small detail of the contract.
- In minor breach cases, the entire contract has not been violated and can still be substantially performed in most cases.
- Examples of minor breaches include technical errors within the contract, such as a wrong date, price, or typo within the terms of the contract; and
- Material or Fundamental Breach: Material or fundamental breaches are the most commonly cited reason for a breach of contract legal action.
- In these cases, the breach is so substantial that it essentially cancels the contract, due to the fact that it renders performance by either party impossible.
In addition to the above types of breaches, examples of other ways that a contract can be breached include:
- If the contract is fraudulent;
- If the contract was formed illegally;
- If the contract is unconscionable; and
- If there is a mistake of fact present in the contract terms.
Once one party is able to prove that a breach of contract has occurred, they will then be allowed to sue the breaching party for damages. In general, the most common type of damage awarded in a breach of contract action is compensatory damages.
The term compensatory damages covers both general damages and specific damages. General damages are damages that are meant to cover losses that are directly related to the subject matter of the contract, such as failing to meet a set number of shipments.
Specific damages, on the other hand, are damages that are meant to compensate the non-breaching party for losses related to the breach, but not resulting directly from the breach. For example, damages that are related to a business’ reputation.
In addition to compensatory damages, there are other damages that may be available for a breach of contract action. Examples of other types of damages in contract law available for breach of contract actions, include:
- Restitutional Damages: The purpose of restitution damages is to restore the non-breaching party to the position they were in before a contract was formed, such as refunding them what they put forward in the contract;
- Liquidated Damages: Liquidated damages are a pre-set amount of damages that is meant to reflect an estimate of the actual damages a party should receive, should a contract breach occur.
- A liquidated damages clause will often appear in contracts where the subject matter may complicate the process to predict the amount of actual damages;
- Nominal Damages: Nominal damages are essentially a symbolic damage that is awarded when no true harm resulted from the breach of contract.
- Because these damages reflect more of a matter of contract principles, nominal damages can oftentimes be as low as one dollar;
- Quantum Meruit: Quantum meruit is a Latin phrase which translates to “what one has earned.”
- This type of damages is intended to recover the reasonable value of services performed by one party for another;
- Remedies in Equity: Remedies in equity refer to a different form of legal remedies that aren’t monetary in nature. This type of legal remedy is discussed further below; and
- Punitive Damages: Punitive damages are damages that are available when there is an incentive to punish and deter the offending party from re-committing such outrageous and offensive actions in the future.
