Breach of Contract Claims
Anyone involved in running a business should be familiar with the basic laws governing business contracts and breach of contract lawsuits. Businesses utilize a variety of contracts at any given time, whether that means their employment contracts with their employees, their commercial leases with their landlords, or purchasing agreements with their vendors.
Each of these contracts serves a unique purchase. There are countless kinds of contracts in the business world, including:
- Contracts for the Sale or Purchase of Goods, including Bills of Sale, Purchase Orders, and Warranties
- Contracts for Services
- Licensing Agreements
- Commercial and Residential Leases
- Insurance Policies
- Promissory Notes, Security Agreements, and other loan contracts
- Partnership and Shareholder Agreements
- Franchise Agreements
- Non-Disclosure Agreements
- Employment Contracts and Non-Compete Agreements
- Settlement Agreements and Releases
Do I have a binding contract?
Not every agreement constitutes a legal contract, even when made between businesses. There are also many misconceptions regarding what constitutes a legal contract, such as the common mistake that every contract must be in writing.
To constitute a legal contract, the agreement must meet several requirements:
- There must be an offer in the form of a promise to do something or refrain from doing something;
- The offer must be accepted on the same terms as the offer;
- The agreement must involve consideration, meaning something of value must be exchanged;
- Both parties must be mutually obligated to perform their end of the agreement;
- Both parties must be competent and have the legal capacity to enter the contract, as contracts with mentally incapable individuals are generally void and contracts involving minors are voidable by the minor;
- Depending on the type of contract, such as a contract for real property or certain contracts for the sale of goods over a certain monetary amount, some contracts must be in writing.
If these elements are met, both parties must strictly adhere to the terms of the contract or be found in breach of the contract. If one party breaches the contract, it will generally owe the other party damages. Depending on the language of the contract, there can be several other consequences of breaching a contract
How do I seek compensation for a breach of contract?
If you or your business has suffered losses as a result of a breach of contract, you should review the language of your contract and consider legal action, such as filing a lawsuit for breach of contract.
To succeed in a breach of contract lawsuit, you will have to prove that you had a valid and binding contract with the defendant, that the defendant breached the contract, and you must usually provide advance notice to the defendant before filing the lawsuit.
There are also several different types of breaches, and the damages you are entitled to depend on the nature of the breach. There are three general categories of breaches of contract:
- A material breach, which the failure by the breaching party to perform its end of the bargain causes such a loss to the injured party that the injured party is excused from performing their end of the bargain.
- A partial breach, in which the injured party must still perform its end of the bargain but is entitled to compensation based on the breaching party’s partial failure to perform.
- An anticipatory breach, in which a defendant has not breached the contract yet but the plaintiff can prove that the defendant displayed an intention to breach the contract.
Regardless of the type of breach, a party that can prove a breach is entitled to damages to the extent that they will be made whole. In some cases, however, some contracts may provide notice that breaching can incur additional damages.
What defenses are available if I am sued for breach of contract?
In cases where the parties disagree as to whether a breach of contract occurred, the party being sued for a breach can show that they fulfilled their contractual obligations or met the standard for “substantial performance,” under which the breaching party is still entitled to a degree of compensation despite not fully performing every term of the contract.
Sometimes, however, breaching a contract cannot be avoided, or might even be necessary to keep your business afloat. Depending on the circumstances surrounding the breach, there may be several affirmative defenses available. An affirmative defense means you are not contesting the basic facts, but instead justifying a failure to fulfill your contractual obligations. A successful affirmative defense can help you avoid having to pay damages or can otherwise reduce your liability to the other party.
Invalid contract – One potential argument is to identify a defect in the contract that makes it invalid and not legally binding. Examples of such defects include a failure to memorialize an agreement in writing if it falls under the category of contracts that must be in writing, indefinite terms in the contract that make the contract unenforceable, and terms requiring one or both of the parties to engage in illegal conduct.
Force Majeure – In Georgia, force majeure is a contractual and statutory defense. Contractually, you may be excused from performing if your contract has language stipulating that you do not have to fulfil your contractual obligations if there is a natural disaster, war, or other significant event that makes performance impossible. Whether a contract has a force majeure clause that excuses your performance depends largely on the specific language you used.
Under Georgia statutory law, O.C.G.A. § 13-4-21, a breaching party is excused “if performance of the terms of the contract becomes impossible as a result of an act of God.” While the law is still being developed to further define “act of God,” the general definition excludes any event that “excludes all idea of human agency” or human involvement in the event.
Impossibility and Frustration of Purpose – Similar to force majeure, these defenses allow a party to claim that they are excused from performing the terms of the contract because unforeseen and unforeseeable circumstances have made it impossible to perform the contract or have undermined the purpose for which the contract was entered. Generally, the contract must have been entered two by both parties operating under the common assumption that these unforeseen circumstances would not occur.
Duress and Undue Influence – A party may be able to show that the contract was invalid, and excuses their failure to perform, because it was a product of duress or undue influence. The breaching party must show that he or she was forced to enter into the contract and would not have done so voluntarily, such as by blackmail, physical threats, or threats of legal action.
Undue influence, on the other hand, usually involves more subtle pressure. For example, undue influence can arise in cases where the parties have a fiduciary relationship and the party with more bargaining power exploits that. Contracts that involve fiduciary relationships are subject to more scrutiny from courts.
Mutual and Unilateral Mistake – If both parties entered the agreement based on a mutual misunderstanding of the terms of the contract, the contract is void and neither party has to perform. Generally, a contract is not void just because one party was mistaken or misunderstood the agreement unless the party can prove that the other party caused their mistake or knew of their misunderstanding and did nothing to correct it.
Unconscionability – This is a rare defense in which the breaching party essentially argues that the terms of the contract are so unconscionable that it must be voided. Courts will generally only consider an unconscionability defense if a party was wrongfully induced into entering the contract, if one of the parties had a much stronger bargaining position, or if the terms of the contract are grossly unfair or one-sided. This is similar to arguing that the contract is a contract of adhesion, where one party has almost all of the leverage and can unilaterally define the terms of a contract.
Misrepresentation or Fraud – Misrepresentations can be intentionally or accidental statements that misrepresent a material term of the contract and therefore make the contract, or at least that term, void. Fraud, on the other hand, is always intentional and can include an active misrepresentation or an omission of an important fact. The breaching party must prove that the defendant engaged in misrepresentation or fraud and that their fraudulent conduct induced them to enter the contract.
Efficient Breach – While this is not an affirmative defense, there are circumstances where it may be in your business’s best interests to get out of a contract and you can’t rely on the defenses discussed above. In these cases, it may make sense for you to engage in what’s called an “efficient breach,” where one party breaches the contract by failing to perform because it is easier to pay damages than it is to perform under the contract. Before you breach the contract in this situation, however, it is crucial to review the language of the contract and determine how much you may be on the hook for if you breach. Some contracts penalize a party for breaching under certain circumstances. What initially looked like an efficient breach may not be efficient at all.
Can I get out of a contract?
Even if you haven’t breached a contract, it may be in your business’s best interest to get out of a particular contract. Maybe the price of goods has dramatically changed since your last vendor agreement, or the market has seen a significant decrease in demand.
Depending on the language of the contract, you may be able to rely on one of the defenses above as justification to excuse performance on the contract. If there is a natural disaster that damages your business’s property and you have to temporarily close, for example, your contract with your vendors may have language allowing you to void the contract. There may be a clause in the contract that allows you to withdraw if certain market conditions are triggered. However, it is very important to review the contract before you try to excuse performance on your end, as there may be requirements that you provide notice to the other party or take certain steps to mitigate damages before you can claim a justified breach the contract.
Call an experienced trial attorney to help you resolve a breach of contract claim
If you need an experienced and successful trial attorney to help you enforce or dispute a breach of contract claim, contact our firm and discuss your case with one of our lawyers in complete confidence. You will not find lawyers anywhere in the country with more recent successful results, better credentials, or who are more determined to fight breach of contract claims. Our determination usually leads to a resolution of the case without the need for protracted litigation or trial. But we are always ready to fight to case all the way to trial to protect our clients’ rights.