Understanding Breach of Contract
Contracts are a fundamental part of conducting any business. They are legally binding agreements, and they outline the obligations of all parties involved.
When either party fails to fulfill their part of the agreement, this is called a breach of contract. Such breaches could involve not completing a job, not paying on time, failing to deliver goods, or any act that shows the party will not complete their obligations.
The Elements of a Breach of Contract Claim
Certain elements must be present for a successful breach of contract claim in California:
- The contract must be valid.
- The plaintiff (the person filing the claim) must have fulfilled their contractual obligations, or they must have a valid reason for not doing so.
- The defendant (the person accused of breaching the contract) must have failed to fulfill their obligations.
- The plaintiff must have suffered damages as a result of the breach.
Types of Contract Breaches: Material and Immaterial
Not all breaches are created equal. In California, breaches are categorized as either material or immaterial.
A material breach is a substantial failure to perform. It allows the aggrieved party to stop performance and sue for damages.
An immaterial breach is a minor failure that does not significantly affect the contract’s purpose.
Understanding the difference between these two types significantly impacts the legal remedies available.
Common Examples of Breach of Contract
Non-Payment for Goods or Services
This breach happens when one party fails to pay the agreed-upon price for goods delivered or services rendered. Such breaches can have significant financial implications for businesses and individuals, leading to cash flow problems and potential bankruptcy.
Failure to Deliver Goods or Services
This breach occurs when one party does not deliver the goods or services outlined in the contract. Such failure can result in significant losses for the party expecting delivery. They may have made plans based on the expectation of those goods or services.
Violation of Confidentiality Agreements
Confidentiality agreements are a common part of many business contracts, especially in industries that regularly handle sensitive information. When one party discloses confidential information in violation of such an agreement, this is a breach of contract. Such breaches can lead to significant damage, especially if the disclosed information gives competitors an advantage.
Legal Remedies for Breach of Contract in California
Damages: Compensatory, Punitive, and Nominal
When one party sues another for a breach of contract, they are expecting financial compensation. This compensation is called “damages.”
Compensatory damages can cover the actual loss incurred as a result of the breach. Essentially, the defendant pays the plaintiff back for the money the plaintiff lost.
Punitive damages, which are rare in contract cases, punish the breaching party and deter similar behavior from others.
Nominal damages are a small sum awarded when a breach occurs, but no actual damage results.
Specific Performance: When Money Isn't Enough
In some cases, monetary compensation can’t remedy the breach. In these instances, a court may order specific performance. This order requires the breaching party to fulfill their obligations as outlined in the contract.
Courts typically use this remedy when the contract is unique or rare, such as in contracts involving unique goods or services.
Rescission and Restitution: Undoing the Contract
Rescission is another possible remedy. It allows the aggrieved party to cancel the contract and return to the position they were in before signing it.
Restitution requires the breaching party to return any money or property received under the contract.
These remedies are often useful when a contract is based on fraudulent or mistaken information.
Proving a Breach of Contract in California
The Burden of Proof: What You Must Show
To prove a breach of contract in California, you must show that a valid contract existed, you fulfilled your obligations or had a valid reason not to, the other party failed to fulfill their obligations, and you suffered damages as a result.
In civil court, you must prove your case using a “preponderance of the evidence.” This standard means it's more likely that each element is true.
Evidence in Breach of Contract Cases
The evidence you need in a breach of contract case varies depending on the nature of the contract and the breach.
Common evidence includes:
- The contract itself
- Witness testimony
- Proof of payment or non-payment
- Communications between the parties
- Any documents or materials related to the contract and the parties' performance
The Role of Expert Witnesses in Breach of Contract Cases
In some cases, expert witnesses can help prove certain elements. For example, an accountant could provide a detailed analysis of financial losses resulting from the breach, or an industry expert could testify about industry standards and whether the defendant's actions met those standards.
Preventing a Breach of Contract
Understanding how to handle a breach of contract is important, but you can take measures to prevent such breaches in the first place. Here are some ways to protect yourself when entering a new contract.
Draft a Strong Contract
The first line of defense against contract breaches is a well-drafted contract. A strong contract is clear, specific, and enforceable. It clearly defines the obligations of each party, provides specific details about how to fulfill those obligations, and contains a structure that is legally enforceable.
Before entering into any new contract, get help from an attorney. They can help you draft the document, and they can make sure you don’t sign something that will harm you.
Include Dispute Resolution Clauses
Make sure your contract includes a dispute resolution clause, specifying how you will handle any disputes that arise. Typical resolution methods include mediation, arbitration, or litigation. A clear process can help prevent minor disagreements from escalating into major breaches.
Conduct Regular Contract Reviews
Finally, regular contract reviews can help identify potential issues before they become major problems. The review process might involve going over documents with a lawyer, checking for compliance with contract terms, or updating contracts to reflect changes in the law or your business relationship.
Palmer Rodak & Associates is here to help with contract disputes, and we can step in when someone has breached a contract. To meet with our team, call us at (760) 573-2223 or reach out to us online.
