FindLaw KnowledgeBasePublished: 2011-09-07
When your business entered into a contract with another business, you agreed to perform the terms of the contract. Now, that other business has breached the contract, potentially putting your company in jeopardy. What should you do?
If you have a valid contract, a breach of contract attorney can help you bring a claim against the breaching company. Many state and federal statutes — including California’s Civil Code, the California Business and Professions Code and the Uniform Commercial Code (UCC) — protect businesses from material breaches of contract.
What Qualifies as a Material Breach of Contract?
A breach of contract can either be “material” or “immaterial.” Generally, in order to bring a lawsuit for breach of contract, the breach must be material. To determine whether a breach is material, courts will look at many factors, including whether the injured business did not receive a benefit that it reasonably expected; whether there is an adequate remedy for the breach of contract; whether the breaching business acted in good faith and fair dealing; and whether the breaching business is likely to perform on the breach.
For example, if a business failed to deliver goods in time (but did, in fact, deliver the goods), its liability for breach of contract may depend on whether the failure caused actual damage and whether the contract stated clearly that time was of the essence.
What Are the Remedies for Breach of Contract?
Usually, the breaching party will have to pay monetary damages (“compensatory damages”) for breach of contract. A court will determine damages by approximating the extent of the injury caused by the breach. In cases involving financial contracts, this can be the amount dictated by the contract. The goal is to put the non-breaching business in the same position it would have been in had the breach not occurred.
Damages may also include:
- Specific performance: The business breaching the contract may be required to perform its obligations under the contract. Specific performance is used in cases where monetary damages will not adequately remedy the contract breach.
- Liquidated damages: Liquidated damages are specific damages outlined in the contract.
- Restitution: A non-breaching business can sometimes choose to void the contract and ask for restitution. If restitution is awarded, the non-breaching business can receive damages to put it back in the position it was in prior to the contract.
- Punitive damages: Punitive damages are additional damages that punish the breaching party. The non-breaching business cannot recover punitive damages solely for the breach of contract. Punitive damages are only available in situations where the act that caused the contract breach was also a tort/wrongdoing.
- Attorneys’ Fees: Attorneys’ fees are only awarded where a written provision provides for them.
An important thing to remember is that a court will only award damages if they are clearly ascertainable.
Bringing a Claim for Breach of Contract
How should your business address a breach of contract? First, there are informal ways to resolve contract breaches, such as business mediation. Mediation is a good option when the businesses are on relatively equal footing and are willing to come to a resolution outside of the courtroom.
Parties can also choose to go through business arbitration to cure a contract breach. During arbitration, a neutral, third-party arbitrator will hear both parties’ arguments and make a binding decision about the breach of contract.
Finally, businesses can go through the court system. If the breach is relatively minor, a business can bring a claim in small claims court. A sole proprietor can bring a breach of contract claim for damages up to $7,500. Other business entities can bring claims for damages up to $5,000. Breach of contract claims over those amounts can be brought in superior court.
How long ago did the breach happen? This is a very important question to ask. The court will only hear claims that fall within the statute of limitations (a law that explains how much time a party has to bring a claim). In California, for example, a business has four years from the time of the breach to bring a breach of written contract claim and two years to bring a breach of oral contract claim.
Should you hire a breach of contract lawyer? This article explains general rules of contract law. Every contract dispute is unique and the results of a breach of contract claim will depend on the specific circumstances of the claim. A business law attorney experienced in breach of contract can help you review the facts of your case and take the appropriate actions to recover from the breach.