Breach of Contract

A breach of contract occurs when a party fails to perform its obligations under a legally binding agreement without a valid legal excuse. The failure can involve not performing at all, performing late, or below the agreed standard. For a breach to be legally actionable, a valid contract must exist. It requires an offer, acceptance, and consideration, and the failure must have caused measurable harm.

How a breach of contract works

Courts evaluate whether a breach is material or minor, since the severity of the breach affects the available remedies.

• Material breach: A significant failure that defeats the purpose of the contract. The non-breaching party may treat the contract as terminated and sue for damages.
• Minor breach: A less significant failure in which the contract is considerably performed. The non-breaching party may seek compensation for resulting harm but cannot treat the contract as void.
• Anticipatory breach: One party signals before the performance date that it will not perform. The non-breaching party may treat the contract as already breached and pursue remedies without waiting for the actual failure.

Key elements required to prove breach of contract

A breach of contract claim does not succeed on the breach alone. The non-breaching party must establish all four elements before a court will grant relief.

1. A valid contract existed, with offer, acceptance, consideration, and legal capacity.
2. The plaintiff performed its obligations, or had a valid reason for not doing so.
3. The defendant failed to perform a contractual duty.
4. The plaintiff suffered damages as a direct result.

If any element cannot be established, the claim may not succeed even if a contract was in place.

Available remedies

Courts offer different remedies depending on the type and severity of the breach.

• Compensatory damages: Damages that put the non-breaching party in the position it would have achieved had the contract been performed as agreed.
• Consequential damages: Compensation for indirect losses the parties could foresee when the contract was formed.
• Liquidated damages: A pre-agreed amount specified in the contract for certain types of breach.
• Specific performance: A court order that requires the breaching party to fulfill the contract, typically when monetary damages fall short.
• Rescission: Cancellation of the contract, releasing both parties from their obligations.

Not all remedies apply in every situation. Courts consider the nature of the breach, the type of contract, and the actual harm suffered.

Breach of contract vs. breach of duty

Breach of contract involves failing to meet an obligation in a private agreement. Breach of duty arises in tort law and refers to failing to meet the standard of care a person owes to another, regardless of any contract. A contractor who builds a defective structure may face both a breach-of-contract claim and a negligence claim simultaneously.

Key considerations to avoid and address a breach of contract

A party facing or responding to a breach of contract has options beyond immediate litigation. These practices can help prevent a dispute or protect a party's position when one arises.

• Define obligations precisely. Vague language around deliverables, timelines, and payment terms creates room for disagreement.
• Include a dispute resolution clause. Many contracts specify mediation or arbitration before litigation, which can reduce costs and time.
• Document performance. Keep records of communications, deliverables, and payments in case a dispute escalates.
• Act promptly. Breach of contract claims are subject to statutes of limitations that vary by state and contract type.
• Consult an attorney before terminating a contract. Ending a contract for a minor breach can expose the terminating party to liability.

FAQs about breach of contract

Is it worth suing for breach of contract?

It depends on the damages relative to the cost of litigation. For significant financial losses or ongoing harm, a lawsuit may be the only realistic path to recovery. For minor disputes, the cost of litigation often exceeds what a party can recover.

Can a breach of contract claim fail even when the other party clearly didn't perform?

Yes. If the non-breaching party also failed to meet their own obligations, or cannot demonstrate actual damages, the claim may not succeed. Courts require all four elements for a successful claim.

How long does a party have to file a breach of contract lawsuit?

The deadline is set by the applicable statute of limitations, which varies by state and by whether the contract is written or oral. Most states allow three to six years, with written contracts typically carrying longer periods than oral agreements.