Assess Legal Responsibility in a Breach of Contract

When a potential breach of contract occurs, you must determine who is responsible for the breach, if anyone, and the amount of damages that were incurred. In order to have a breach of contract, an enforceable contract must have been executed at the outset. Even if a valid contract was breached, you must also be prepared to determine whether the breaching party had a valid excuse or defense to performance. If there is no defense or excuse, you may be able to enforce the contract through various means.

Steps

Executing an Enforceable Contract

1. Ensure every party has the capacity to contract. When you attempt to enter into a contract, you must make sure that both you and the other party are of a legal age and of sound mind so that the contract will be enforceable.
   • Minors do not have the legal capacity to contract. Therefore, if you or the other party are under the age of 18, you cannot enter into a valid contract.
   • If you lack mental capacity at the time you try and enter into a contract, the contract will be voidable. You are usually considered to lack capacity when you do not understand the meaning and effect of the words making up the agreement. If you are under the influence of drugs or alcohol when you enter into a contract, a court will usually not allow you to void the contract.
2. Make a valid offer. An offer is made when you or another party makes a promise to do something. To be valid, the offer must be understood by the other party to be an invitation to accept. In other words, if there is a valid offer, when the other party accepts your offer the contract will be formed.
3. Analyze consideration. All of the parties to a valid contract must provide consideration, or incur some type of obligation to the other. Consideration can take many forms and may include an expenditure of money or effort, a promise to perform a service, an agreement not to do something, or reliance. The existence of consideration is what differentiates a contract from a gift.
   • For example, if a party sells their car to another for $5,000, one party gives up a car and the other gives up $5,000.
   • When you enter into a contract, be sure both you and the other party are giving up something of value.
4. Negotiate acceptance. Acceptance occurs when you or the other party accept an offer unambiguously. You can accept through words or actions. However, if your acceptance does not mirror the terms of the offer, your acceptance will actually be considered a counteroffer. To create a contract, you and the other party may go back and forth making various offers and counteroffers. Negotiate with the other party until you reach a deal that is mutually beneficial.
   • For example, if someone offers to buy your car for $5,000, you can accept by saying "I accept your offer to buy my car for $5,000." However, if you said "I will only sell my car for $6,000", this will be considered a counteroffer and not acceptance.

Evaluating a Possible Breach

1. Determine if a breach occurred. A breach occurs when one party fails to perform any promise that makes up all or part of the contract you entered into. Depending on the type of contract you have, a breach might occur when one party:
   • Fails to perform on time (e.g., you are delivered goods under a contract late);
   • Fails to perform in the manner specified in the contract (e.g., you are paid less than what was agreed upon); or
   • Fails to perform at all (e.g., you are not paid at all).
2. Decide whether there was substantial performance. Not all breaches of a contract are actionable. If you or the other party has substantially performed under the contract, which means the obligations were performed with only minor flaws, a court will usually find that the person who substantially performed is not responsible for a breach.
   • For example, if you contracted with someone to build a house for them and they specified that you use Pipe A for the plumbing but you used Pipe B instead, which was almost identical to Pipe A except for the name, a court would likely find that you have substantially performed under the contract.
3. Assess the severity of the breach. Not all breaches are created equal and different breaches will result in different obligations and remedies. In general, you will need to look at a breach and determine if it was material or minor.
   • A minor breach occurs when one party to the contract fails to perform some aspect of the contract but the other party still receives the item or service specified. If you think you have a minor breach, the non-breaching party will still be required to perform under the contract but they will be able to collect damages. For example, when a seller delays delivering goods but ends up making the delivery five days late, the seller has likely breached the contract. However, the buyer will most likely have to pay the seller for the goods but can then collect damages for the delayed delivery.
   • A material breach occurs when the breaching party's failure to perform is so serious that the non-breaching party receives something substantially different from what was contracted for. If you think you have a material breach, the non-breaching party will not have to perform their duties under the contract. Furthermore, the non-breaching party can immediately sue to collect damages. For example, a material breach would occur if you contracted to buy three basketballs from Joe for $50 but Joe sent you three footballs instead. In this situation, you would not need to pay Joe the $50 and you could sue immediately to recover damages.
4. Determine whether there are damages. In order to sue someone for a breach of contract, you must have incurred monetary damages. This means that before a person is responsible for a breach of contract, the other party to the contract must have lost money as a result of the breach. Until you or the other party have incurred monetary damages, a beach is not usually actionable.

Finding Defenses and Excuses to Performance

1. Determine if the contract has a legal purpose. A contract, even if validly executed, will not be upheld if a court would have to break the law to do so. For example, if you enter into an agreement to buy drugs from someone else, no court will uphold this agreement and no breach will be deemed to have occurred.
   • If an agreement has an illegal purpose then there was no legally enforceable contract to begin with.
2. Check for fraud. Fraud occurs when one party misrepresents their side of the facts and the other party, relying on those facts, enters into a contract. For example, if Blue refuses to sell goods to Red, so Red sends Pink to buy the goods so Pink can turn them over to Red, fraud has occurred on Red's part.
   • If fraud occurs, the party that relied on the fraudulent misrepresentation can usually rescind the contract, which means the contract will be cancelled.
3. Look for duress. Duress occurs when one party threatens or coerces the other party into entering into the contract. For example, if you were forced to enter into a contract when the other party was holding a gun to your head, duress may exist.
   • If duress exists, the party that was forced to enter into the contract can rescind the contract.
4. Consider unconscionability. In rare circumstances, a contract may be so one sided that it is determined that no reasonable person would enter into it.
   • If this occurs, the contract will be considered unconscionable and will be voidable, which means the party getting the bad end of the deal can cancel it if they choose to.
5. Check for mistakes. If both you and the other party have a mistaken belief about the facts surrounding the contract, the contract may be cancelled. For example, if both parties intended the delivery date in the contract to be March 15, but the contract actually says April 15, a mutual mistake has occurred.
   • In this scenario, the contract can be cancelled.
6. Evaluate the possibility of performance. Sometimes a contract will become impossible to perform, in which case performance will be excused. For example, if you contracted to buy a yacht from Jane on January 31, but on January 15 a tsunami caused the yacht to be destroyed, your ability to perform under the contract is now impossible.
   • If this happens, the contract will be voidable.
7. Assess the need for a writing. Some contracts are required to be in writing by a law called the Statute of Frauds. The Statute of Frauds requires that certain contracts be in writing. Check your state's statute of frauds to determine if a writing is required. If a contract that is required to be in writing is not in writing, that contract will be unenforceable. Examples of contracts that must be in writing include:
   • Those which by their terms cannot be performed within one year;
   • Those for the sale of certain goods; and
   • Those for the sale of land.

Enforcing a Breach

1. Require performance. If a breach has occurred and the breaching party does not have a valid defense or excuse, one option for you would be to ask that the breaching party perform under the contract. In this scenario, you would bring the breach to their attention and ask that the breach be reversed and the original contract be performed.
   • This is a great option if the breach can easily be fixed. It is also a viable option when you are close with the other person you are contracting with and you are comfortable completing the transaction with them. For example, if you have contracted with your friend Joe to buy three basketballs for $50 but Joe sent you three footballs instead, you could ask Joe if you can return the footballs and have the basketballs sent to you.
   • This may not be a good option if the breach was material and difficult to fix, or if you do not want to work with the other party anymore. For example, if you contracted with Steve to have him install Pipe A in your home but he instead used an inferior Pipe B, you probably wouldn't want him to tear apart your whole house in order to replace the pipes.
2. Negotiate a settlement. If a breach has occurred and you cannot or do not want to require performance, you may want to try and negotiate a settlement. In this scenario, you will need to sit down with the other party and go through what the breach was and how much in damages you have incurred. Discuss your options with the other party and come to some agreement. Settling a contract dispute before it gets to court may be advantageous for many reasons.
   • First, settling your dispute will likely save you money in court fees and attorneys' fees.
   • Second, settling your dispute will save you the time of having to file a lawsuit and go to various court hearings and conferences.
   • Third, settling your dispute will allow you to have a larger say in the outcome. If you go to court, you are leaving everything up to a judge. However, if you can come to a settlement, you and the other party can agree to almost anything.
3. Ask a court for specific performance. If all else fails, you may have to go to court and ask a judge to require the other party to perform. A court will require specific performance only in certain kinds of contract disputes. Generally, this option is only available in real estate transactions where the piece of property being bought or sold is considered unique. In this scenario, a judge may require the breaching party to remedy the breach and continue with the purchase or sale.
4. Ask the court to award damages. In most cases, a judge will award you damages. Damages in a breach of contract are assessed against the party who is found to be legally responsible for the breach. To assess damages:
   • Check your contract to determine if the remedy for a breach is provided in the contract. Any remedy provided for in the contract may be assessed against the breaching party.
   • Fees and costs to sue are available as part of the remedy in almost any breach of contract suit. Attorney fees, copying and mailing expenses, and Court assessed filing fees may be recovered from the breaching party if such fees and costs are expended.
   • Actual damages may be assessed against a breaching party. Actual damages include the amount lost due to the breach of the contract and any fees or costs expended in order to recover. For example, if you paid someone $2,500 to paint your house and he or she has failed to do so, you may recover $2,500 plus attorney fees and Court costs. So if your attorney charges you $600 and the Court $150, you may recover $2,500 plus $600 plus $150, or $3,250 from the breaching party.

Warnings

• You should consult with an attorney before taking any action, or failing to take any action, which may affect your legal rights.

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Sources and Citations

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