A breach of contract is said to have taken place when a business contract between two parties has not been fulfilled because one or other of the two parties has failed to satisfy their side of the contract and the other party has suffered some sort of damages.
The party that has suffered from the breach of contract has legal remedies available that can help to compensate them for any damages that they can prove have occurred as a result of the breach. In many cases of a breach of contract in Massachusetts, the affected party has a better chance of remedying the breach of contract if they engage a business law attorney to help them with their legal options. The affected party may be the party that alleges a breach of contract or the party that is alleged to have breached a contract.
What is a business contract?
To understand the nature of a breach of contract, the term “business contract” must be defined.
When a business contract is agreed to, one of the parties involved is the “offeror” of something promised to be delivered in the contract, while the other party pays “consideration” to the “offeror” when the contract has been honored. Business contracts are very common in business and may be of any value. Business contracts are made on a voluntary basis by the two parties, but when agreed to, they are legally enforceable, i.e. state law protects the affected party in a proven breach of contract.
To take a simple example of a business contract, take an auto sale. The used auto dealer says that he will deliver a particular used auto in good condition to the buyer for $4,000. The dealer gives a written promise that the vehicle is in good condition when sold. The buyer finds, however, that having parted with the $4,000, the auto is not in the condition promised and must be repaired for a considerable sum. This could be considered a breach of contract between the two parties. As with most other breaches of contract Massachusetts law provides the aggrieved party, in this case the buyer, with legal options to remedy the breach.
Criteria for a breach of contract to be recognized
There are clear criteria that must be established for a breach of contract to have occurred.
Firstly, there must be a valid contract made between the two parties. A valid contract is one in which an offer to provide a service or product by one party has been accepted by another party. The contract is usually, but not always set out in writing. It may also be verbal, but both the offer and acceptance of the terms of the offer must be unequivocal.
The contract may set out what each party can do if the terms of the contract are breached, i.e. the remedies available to each party.
Secondly, the “performance” of one or the other parties does not meet the terms of the contract. For example, in the auto sale example above, the auto dealer’s performance may be considered a breach if the vehicle supplied is not what was promised. Alternatively, the buyer may have breached the contract if the vehicle was supplied but the full payment was not made by a time specified in the contract.
Thirdly, the non-breaching party must be disadvantaged in some way by the breach. In the auto sale example, the buyer can legitimately say they have been disadvantaged if they had to pay significant amounts of money to repair a vehicle that was sold to them in “good condition”. The auto trader may also say they have been disadvantaged if the buyer has driven away the vehicle but has given excuses for not paying the full amount agreed to as part of the sale.
Remedies in a breach of contract
The aggrieved party, the non-breaching party alleging a breach of contract, may seek remedies due to the breach. Remedies may include any combination of the following:
- damages, i.e. financial compensation to pay for the losses incurred by the non-breaching party;
- specific performance, which is a requirement that the breaching party fulfills the contract as agreed to;
- restitution or cancellation, which is when the contract is cancelled and any payment already made returned so that the situation prior to the contract is reinstated.
Damages
To again use the auto sale example given above, if damages are pursued by the buyer of the not-so-good vehicle, the auto dealer may be required to pay for any repairs that the buyer had to make to the vehicle because it wasn’t in the state it was promised to be in. These are called compensatory damages. A non-breaching party may also pursue liquidated damages, which have been included as a part of the agreement made in the contract if there has been a lack of performance. Punitive damages are rare in breach of contract cases, but may be pursued if the breach of contract was considered particularly deliberate or egregious.
Specific performance
This is a remedy when no financial compensation can remedy the damages caused by the breach and is an order by a court for the breaching party to fulfill the terms of the contract. Specific performance as a remedy is particularly common in real estate where each sale is unique.
Restitution or cancellation
This may be the preferred remedy when the contract cannot be fulfilled and the non-breaching party pursues a cancellation of the contract, freeing both parties from obligations, unless the breaching party has already benefitted, in which case, restitution may be pursued so that the situation prior to the contract being accepted is reinstated.
Legal options in a breach of contract
The main options available in a breach of contract case are:
- mutual acceptance of the breach and resolution without further legal action;
- mediation between both parties in which a third party is used to help resolve any disagreements between the two parties and bring the complaint to a successful resolution without any further legal action;
- arbitration, in which an administrative law judge hears evidence from both parties and gives a binding judgment on the case;
- the non-breaching party sues the other party in a civil court.
A business litigation attorney can help either the non-breaching or the alleged breaching party with any of these legal options and advance the probability of an acceptable resolution.