The expectation that each side of a contract will uphold the terms to which it has agreed is fundamental to contract law. In most cases, this expectation is met, and both parties carry out the obligations they have assumed. Occasionally, however, one side or the other fails to uphold its end of the bargain – or the two sides find themselves disagreeing about the appropriate interpretation of contract terms. Either of these situations can lead to contract disputes. Resolving such disputes fairly is a central function of business litigation, although many contract disputes are resolved through negotiation outside the courtroom.
At Clearwater Business Law, we are prepared to evaluate the terms of a disputed contract and represent our clients during negotiations, as well as to advocate vigorously on their behalf if it becomes necessary to pursue business litigation for breach of contract. You can reach us throughout the Pinellas County area by calling (727) 502-6874 to book your consultation.
Recognizing Breach of Contract Incidents
Cornell Law School’s Legal Information Institute (LII) explains that a breach of contract may be any situation in which either party to a contract fails to perform its obligations as specified under the contract terms, regardless of the reason. Since life and business are unpredictable, breach of contract disputes are not uncommon. American jurisprudence has traditionally divided such disputes into the categories of minor and material breaches, based on how the breach impacts the purpose of the contract. Evaluating the breach in light of the contract’s purpose can be a very helpful step in deciding whether to pursue business litigation, as well as in determining what remedy to seek from the court if legal action is required.
Breach of Contract – Minor
A minor breach of contract violates a portion of the contract, but does not prevent the purpose of the contract from being fulfilled. A minor violation also typically does not interrupt the ability of the party that has not breached the contract to carry out its own contractual obligations. If Party A is contracted to complete a project for Party B using materials selected and delivered by Party B for that purpose, then if Party B delivers those materials later than agreed Party A may be delayed in delivering the finished product to Party B, but Party A will likely still be able to complete the project, even if the completion date is pushed back.
Breach of Contract – Material
A breach of contract is considered material when it defeats the purpose for which the contract was created. Since parties frequently have different reasons for entering into a contract, typically this “purpose” is framed from the point of view of the non-breaching party, since logically this is the party harmed by the breach.
Resolving Breach of Contract Disputes
Any path to resolution for breach of contract disputes typically depends on first establishing – whether by consensus or by a court’s determination – that one party or the other is in breach of contract. Contracts are intended not just to create liability for parties who fail to uphold their obligations, but to ensure that both sides of the deal share a clear understanding of what each party has promised, and of any circumstances that entitle one side or the other to withdraw from the agreement, with or without penalty (often via an “early termination” clause).
Ideally, therefore, the parties to a contract dispute will agree from the outset to the fact of a breach, even if they disagree about appropriate remedies. Sometimes, however, business litigation over breach of contract disputes hinges on the question of whether there is a genuine violation of the contract’s terms.
Breach of Contract Elements
There are four elements that must be proven in any breach of contract claim, regardless of whether the alleged breach is considered to be material or minor. These elements are as follows:
- There was a legally valid contract between the parties. The parties to a contract, according to the Restatement (Second) of Contracts, are the promisor (who commits to doing something or to not doing something) and the promisee (to whom the promise is made). Because a contract generally involves each side promising something to the other, each party will likely be the promisor for some terms of the contract and the promisee for others.
- The party seeking remedy in court was performing its contractual obligations. Essentially, this means that plaintiffs bringing breach of contract suits will need to show that they were fulfilling their own promises. Prospective plaintiffs who are themselves in breach of contract have considerable incentive to prioritize a negotiated solution, even if they believe their own breach to have been much less significant than the other party’s.
- The opposing party breached the contract by failing to perform one or more promises made in the contract. This is where consensus over the interpretation of contract clauses can be extremely important, and also usually where materiality is determined.
- The party seeking remedy (the non-breaching party) has suffered damages. Sometimes these damages may be projected or estimated, as the breach of contract and resulting business litigation may sometimes take place before the full impact of the breach is felt, as when one party’s failure to perform its obligations deprives the other party of additional business for which it relied on the breaching party’s performance.
Notably, courts may handle breach of contract disputes differently based on whether the breach is actual vs. anticipatory.
Business Litigation for Contract Disputes: Actual vs. Anticipatory Breaches of Contract
As you may already be aware, a breach of contract is considered actual when the time for a party to fulfill its promise has come and gone, and that promise remains unmet. This is true regardless of whether the breach itself is minor or material. A breach of contract is anticipatory when one side of the agreement signals that it will not be meeting its contractual obligations.
Notice of Anticipatory Breach
Anticipatory breaches of contract are more common than business leaders sometimes realize, in part because providing the earliest possible notice when you are unable to fulfill your contracted promise is often a means of giving the other party a chance to alter their own arrangements. When a promisor is unable, despite their best intentions, to perform the obligations specified under the terms of the contract, then informing the promisee – also known as “repudiating” a promise made in the contract – gives the latter party an opportunity to take preventive steps to mitigate potential damages resulting from the breach. An experienced attorney with Clearwater Business Law may be able to advise you regarding whether it is time to inform the other party of anticipatory breach, as well as help you determine options for responding to a business partner’s repudiation of their contractual obligations.
Responding to Anticipatory Breaches
In addition to being, in many cases, the honest and decent course of action, providing notice of anticipatory breach of contract can have some more pragmatic benefits for the breaching party. There are two main ways in which timely notice can work to an unintentionally breaching party’s advantage:
- Providing notice demonstrates good faith, and opens an opportunity for negotiations. Sometimes the promisee is willing to accept the substitution of an alternate product or service from the promisor, and in this case the contract can be modified by mutual consent, avoiding the breach altogether. Even when anticipatory breach of contract leads to business litigation rather than an easy solution, the attempt at fair dealing can often reflect favorably on the breaching party.
- While courts have wavered on whether and to what extent the non-breaching party has an obligation to mitigate the damages sustained due to breach of contract, as a practical matter most businesses do wish to minimize their financial losses. In the event that contract disputes do proceed to business litigation, any steps the promisee has taken to mitigate damages can result in a commensurately reduce the damages the party in breach of contract may be ordered to pay.
The options for reaching a negotiated agreement out of court, and the types of remedies most commonly awarded in breach of contract business litigation, depend not just on whether the alleged breach of contract is minor vs. material, but also on whether it is anticipatory vs. actual.
Discuss Pending Business Litigation With an Attorney Experienced in Contract Disputes
Most of the time, negotiated solutions are the preferred path to settling contract disputes. In large part this is because business law – like contracts themselves – tends to prioritize outcomes in which everyone gets most of what they want, and no one suffers undue losses. With contract disputes over one party’s breach, the feasibility of negotiated outcomes tends to depend partly on the causes underlying the alleged breach, as well as how central the failure to perform is to the purpose of the agreement. If negotiation does not yield results acceptable to all involved, then the next step is business litigation. At this stage it is critical to consider working with a business law attorney who has the experience and acumen to understand your concerns and advocate for your interests before a civil court. Connect with an experienced business litigation attorney in the Pinellas County area by calling Clearwater Business Law at (727) 502-6874 today.