Breaches of Contract

Disclaimer

Below you will find some general information about breaches of contracts in California. Different states have different laws regarding contracts as well as court procedures. There are multi-volume treatises on the subject. The standard contracts class in law school is a year long. Law schools also offer additional classes in specific areas where contracts arise including sales of goods, negotiable instruments, secured transactions with respect to the sale of goods, real property law, real property secured transactions, securities law, intellectual property law, and international law, etc.

This general information may not apply to you, and it is not intended as a legal opinion or legal advice.

Breaches Of Contracts

As mentioned in the web page about contracts, contracts exist for purposes of enforcement. Without a way to enforce the agreement, why bother to have a contract? Sure, you may have the moral high ground for not being in breach, but that will not help you run your business.

Contracts can be breached in about any way imaginable. A breach is a violation of the contract's terms. Therefore, determining whether a breach occurred depends on the terms of the agreement. The law will supply some contract terms if the parties do not specifically agree on them. For example, if there is no time limit for something to be done, a court will imply a reasonable time. What is reasonable will depend on the facts and circumstances of the particular situation, and it will be different in different cases. In the context of the sale of goods a court may even insert a provision as to the price goods should be sold at if the parties left the price term open. The court may insert what it determines is a reasonable price. This, of course, will be subject to proof and may require the use of expert witnesses. From a planning standpoint it is better to determine and agree to the terms up front.

In general, however, it is up to the parties to make their agreement. A breach is determined by comparing a party's performance to the obligations in the agreement.

Common breaches include late or failed delivery or payment. In addition there may be issues with respect to the quality of goods or whether the proper goods were furnished.

There are differences in the severity of breaches of contract. A trivial breach will not give you the right to stop your performance or walk away from a contract. Hyper-technical demands for absolute compliance with the last letter of an agreement are neither productive nor practical. In addition it may not be enforceable. Remember, if you have to go to court you will be second-guessed by the other side as well as the judge or jury. Your best guide is to act as reasonably as you can with the information you have.

A substantial or material breach may give you the right to stop performing your side of a contract. What is substantial/material depends on the context. Again, it is important to be reasonable and realize you will be second-guessed.

Once a contract is breached the party in breach may be liable for damages. Typically this takes the form of money damages. Generally the law looks to put the non-breaching party in as good a position as they would have been had the breaching party fulfilled their obligations under the contract. It is very rare for a party to come out ahead when someone breaches a contract.

The measure of damages will depend on the nature of the contract. Returning to the general proposition that the law tries to put the injured party in as good a position as they would have been had the contract been performed, the measure of damages in a case for the non-payment of goods sold and delivered will be the contract price for the goods. In a sale of goods case where the buyer declines to accept the goods prior to delivery the seller's damages will be the difference between the contract price and what the seller can re-sell the goods for or what the market price was at the time and place of delivery. If the seller can get more for the goods than what was originally agreed, the seller may not be entitled to damages. The breaching party will also be liable for incidental damages related to the breach.

The law does not allow pain and suffering damages for the breach of a contract. While a broken business deal may impose significant economic hardship and distress, the law deals with the economics of the situation.

Generally each party bears their own attorneys' fees. This general rule is changed if the contracts have a provision specifying that in the event of a dispute the winning party is entitled to their attorneys' fees. Even if written as a one sided attorney fee provision, a court will interpret it as mutual. Some laws also have attorneys' fees provisions.

The non-breaching party has an obligation to mitigate their damages. This means they must take reasonable steps to salvage the situation and prevent additional harm. For example, in the context of a buyer canceling an order to buy goods prior to delivery, the seller has an obligation to re-sell the goods at the best price they can find. It is important to document your efforts at mitigating damages so you will have a record to use if you have to go to court. By failing to mitigate damages the non-breaching party may be awarded less or perhaps nothing at all for their troubles.