What do you do when the party you entered into a contract with refuses to perform their end of the bargain? Do you know your rights and options with a breach of contract?
Contracts are a vital component of all business dealings. When individuals and companies come to an agreement, a contract is a way to formalize the terms of what was agreed upon. Then both parties can move forward, relying on the other to follow through with their contractual obligations.
Keep reading to understand what you can do if someone violates the terms of the contract, including how a contract litigation attorney can help you.
Your Contract Must Be Enforceable
If you enter into a contract with another party, and they breach that contract, before you can sue them for that breach your attorney will need to review the agreement to be sure that it is enforceable. If you had an attorney representing you when the contract was entered into, this should not be a problem. If, however, the agreement is one that you and the other party created on your own, it may not contain the necessary elements to be considered an enforceable contract under the law. Oral contracts can also be enforced under certain circumstances if they meet all the necessary requirements.
Following are requirements that contracts must comply with in order to be deemed enforceable.
Parties Must Be Able to Enter Into the Contract
In order for a contract to be enforceable, the parties to the contract must be able to legally enter into a contract. The purpose of this rule is to ensure that all parties are aware of what they are contractually agreeing to. Mentally incompetent people are considered to not be able to enter a legally binding contract. If they do enter into a contract, the courts will likely void it and deem it unenforceable.
Persons under the age of 18 are also considered to be too young to enter into a contractually binding agreement. However, if a minor uses deceptive practices ( such as lying about their age) to induce another party to enter into an agreement with them, the minor may be ordered to return the benefits they received in order to cancel the contract they entered into. If a minor re-affirms a contract after turning the age of 18, then the contract can be considered to be legally binding.
Emancipated minors, or minors that are not supported by their parents, are able to enter contracts for necessary items such as food and shelter.
The Contract Must Be for a Legally Allowed Purpose
To be enforceable, a contract must have a purpose that is legal. This is not typically a problem for most contracts, as they do not attempt to break the law. But contracts that do break the law cannot seek enforcement from the legal system.
An example would be if a “community” or its members attempted to enforce a contract that states the homes in the community may only be sold to members of a certain race. Should any party to this contract seek to have it enforced, they will find no recourse in the legal system as the government will not violate the constitutional rights afforded to citizens.
Parties Must Agree to Contract Terms
All parties to a legally binding contract must actually agree to the important terms of the agreement. They must consent through their own free will, without coercion or duress. In other words, if one of the parties only signs the contract because they are being forced to do so by the other party, the agreement may be deemed unenforceable. Using or threatening to use physical violence against the other party in order to make them sign the contract would render the contract voidable.
There Must Be Consideration
Consideration is required for a contract to be valid and therefore enforceable. Also, all parties to the contract must have an obligation under the terms of the contract. A contract to purchase a home is a prime example. The seller promises to sell the house to the purchaser, and the purchaser promises to pay the seller a certain amount of money for the home. Both parties have obligations under the contract, and there is an exchange of consideration.
Although the most common type of consideration is money, it does not have to be. Let’s say a party promises another party that in exchange for house cleaning services, they will repair their car. No money changes hands, yet it is clear that two valuable services are being exchanged. Also, both parties in this example have an obligation under the agreement.
Contract Must Be Able to Be Performed
Having “subject matter” that is able to be contracted on is a requirement for enforceability. If Party 1 contracted to sell Party 2 a one-of-a-kind piece of artwork, but the piece was burned in a house fire prior to the sale taking place, the Party 1 is unable to fulfill their obligation under the contract. As it is impossible for Party 1 to live up to their end of the bargain, the contract cannot be enforced.
Remedy #1: Specific Performance
In the majority of breach of contract cases, the remedy is monetary damages. Yet there are times when monetary damages are not adequate. In these cases, it is possible to request that the court enforce specific performance of the terms of the contract. This means that the party
that breached the contract will be required to comply with the contract terms as nearly as possible. Consider the previous example of the contract for a one-of-a-kind piece of art. Instead of a fire destroying the artwork, the seller decides that they want to keep the art and no longer wish to sell it to the purchaser. There is no amount of money that will make up that loss to the purchaser. In such a situation, the court may require that the seller follow through with the sale of the art to the purchaser.
Remedy #2: Rescission of Contract
When the other party breaches a contract you entered into with them, you may feel that the best remedy for your loss is to just walk away from the agreement altogether. Under the law, you may be able to rescind, or cancel, the agreement in full. When this happens, you are relieved of any obligations you had under the terms of the contract.
Rescission is an option most often chosen by parties that have suffered a loss due to fraud and a breach of contract. Once the contract has been rescinded, the injured party is no longer subject to any restrictive covenants in the contract that could serve to limit their ability to recover and be placed in the position they were in prior to the breach occurring. This is commonly achieved by suing the party that committed fraud and breached the contract and having them pay compensatory damages. A contract litigation attorney will be able to determine whether or not rescission is an option you should pursue in a breach of contract case.
Remedy #3: Monetary Damages
For most parties that suffer a loss due to a breach of contract, the preferred remedy is not rescission or specific performance. Instead, it is monetary damages. There are different types of damages that may be available, depending on the circumstances surrounding the breach of contract. An Atlanta contract litigation attorney will be able to advise you which of these damages you may be able to recover in a breach of contract case.
Compensatory damages are also known as “actual” damages. The objective of these damages is to allow the party that suffered a loss due to the breach to recover monetary damages equal to their actual loss.
In many well-drafted contracts, there is a clause for liquidated damages. These clauses typically eliminate the need to prove actual damages in case of a breach of contract, as they state the amount that the injured party will receive in case of a breach. These clauses save time and resources when a breach occurs, as the parties will not need to litigate the amount of actual damages. Courts have been known to hold liquidation clauses unenforceable if they impose a penalty. The courts will consider three factors when determining if a liquidation clause is enforceable:
- The injury suffered by the non-breaching party would have been impossible or extremely difficult to establish prior to the breach occurring;
- The damages must be compensatory rather than punitive;
- The amount of damages must have been a reasonable estimate of the cost of the injury when it was agreed upon.
Foreseeable damages are damages that the parties at the time the contract was entered into knew, or should have known, could arise if the contract was breached. For example, if two parties have entered into a contract for Party 1, a part supplier, to provide Party 2, a dishwasher manufacturer, with the parts needed to make their dishwashers, and Party 1 breaches that contract, Party 2 may be entitled to any resulting foreseeable damages, such as loss of business due to their inability to procure the parts they need to fulfill customer orders on time.
It is probable that the non-breaching party, in order to comply with the terms of the contract, incurred expenses. They should be able to recover these expenses especially if the breach has rendered the expenses they incurred a total loss.
Attorneys Fees and Litigation Costs
There are situations in which the non-breaching party is able to recover the attorneys fees and costs of litigation they incurred due to the breach of contract. For this to occur, they will typically be required to prove that the other party acted in bad faith or used fraud or deceit. Also, attorneys fees and litigation costs can be awarded when the breaching party has been particularly hostile and made litigation the only route for the non-breaching party to recover for their losses.
Punitive, or exemplary, damages are imposed in situations where the court wishes to punish the guilty party in order to dissuade similar conduct in the future. They are not generally awarded in breach of contract cases, but may be when the breaching party also committed a civil tort, such as fraud or deceit. In most cases, their actions would need to be intentional and willful for punitive damages to be awarded. A litigation attorney would be able to determine whether or not you are entitled to punitive damages.
How a Contract Litigation Attorney Can Help You
If you have suffered damages due to another party breaching the terms of a contract you, or your business, entered into with them, it is in your best interest to speak with an Atlanta contract litigation attorney. They are able to assist in the following ways:
- By determining whether or not the contract you entered into was enforceable
- By determining what damages you are entitled to collect due to the breach of contract, including whether or not punitive damages are warranted
- By representing your interests in dispute resolution matters, such as arbitration and mediation
- By filing suit on behalf of you or your business if the case is not settled through dispute resolution
- By representing your, or your business, in trial proceedings
Jason Alloy is a litigator at Robbins Alloy Belinfante Littlefield LLC with significant trial and arbitration experience. Jason has briefed and argued appeals in both state and federal courts and has tried cases in court and in arbitration before AAA, JAMS, and FINRA. Jason previously served as counsel for the State of Georgia in litigation against the major tobacco companies, which resulted in a settlement that provided Georgia with approximately $56 million in 2013 from the tobacco companies and ensures continued payments to the state in the future.
Jason is recognized as a “Georgia Super Lawyer” in Business Litigation by Law & Politics and Atlanta Magazine and has been named to Georgia Trend’s Legal Elite for General Practice and Trial Law.