Breach of Contract

A deal is a deal, until someone backs out of the deal.  When they do, a cause of action exists for a breach of contract.

To bring an action for breach of contract, the plaintiff must show:

  1. the existence of a contract (and specify whether it was oral or written);
  2. that the plaintiff fully performed all duties to that contract, or was excused or prevented from doing so;
  3. that the defendant breached one or more terms of the contract; and
  4. that the plaintiff suffered damages proximately related to the defendant’s breach of contract

Contrary to popular belief, most contracts need not be in writing to be valid and enforceable.  The problem with oral contracts is that their existence and precise terms are often difficult to prove when a defendant denies them.  Even when not legally required, you should always reduce important agreements to a signed writing, and better still, have an attorney draft (or at least review) the agreement first.

The general remedy for a breach of contract is to put the parties in the position they would have been in but for the breach.  As an example, let’s look at the case of a real estate transaction involving the sale of home.  Assuming the inspections are complete and any contingencies removed, if the seller backs out then the buyers would normally be entitled to the difference between that sales price and the ultimate sales price when sold to a subsequent buyer.  Normal damages could also include interest to carry the house until it finally sells, etc.  However, in residential real estate, damages to the seller are limited to 3% of the purchase price.  So, most real estate contracts contain a clause known as “liquidated damages”.  It specifies that if the buyer breaches the agreement, the buyer forfeits their deposit, up to a maximum of 3% of the purchase price, and there is no need for either party to prove what the actual damages are.

Using the same example, if a seller attempts to back out (a breach) of the contract, the buyer would have available as damages, the difference between the contract price and the market value of the home.  In some cases, this value is zero.  In others, the buyer may have purchased the home well below market value and the damages could be tens of thousands of dollars.  Further, if the buyer(s) intended to occupy the home themselves, they could forgo monetary damages and instead enforce the contract on an equitable basis known as specific performance.  In this case, the court could order the home sold to the buyers for the contract price.  The theory here is that when you’re buying your “dream home”, no amount of money could compensate you for not being able to live in the home forever.

If you are a party to a contract and the other side isn’t living up to their end of the bargain, you should immediately seek legal advice to protect your interests.  Likewise, if you find yourself accused of a breach of contract, contact us before you are served with a summons and complaint.

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