Contracts are, at their essence, a formalized way of making a promise or giving one’s word that they will or will not take certain action. Like all promises, contracts are based upon a mutual trust and belief in good-faith and fair dealings between the parties. When one party acts in a way that is contrary to these general principles of business, the non-breaching party can face significant damages and disruptions to their business. However, there are a number of other reasons why contract disputes can arise. These reasons can include unforeseen reversals in market conditions or a company’s financial state, impossibility or impracticability of the contract, or other actions that may frustrate the purpose of the underlying agreement.
When a company is faced with a contractual breach, it may attempt to resolve the matter itself. Unfortunately, an unartful handling of situations of this type can result in the damaged party knowingly or unknowingly waving certain rights or altering the course-of-dealings between the parties. Such action can have a devastating impact on a non-breaching party’s ability to be made whole and collect the damages they would have otherwise received as the benefit of the bargain.
The Law Firm of William S. Heyman provides experienced, strategic, and responsive legal guidance for businesses facing a contractual breach. Mr. Heyman has more than 20 years of experience litigating complex corporate matters
When Has a Contract Been Breached?
Contracts can be breach in a number of ways. Typically a contract is breached when one of three events occur:
- A party fails to act on time or fails to refrain from taking certain actions during the relevant time period.
- The party does not perform as required by the agreement’s terms. For instance, the contract required the delivery of stainless steel widgets delivered to the party’s factory. Instead, brass widgets are delivered to the company’s corporate offices.
- The party fails to perform the contract in any manner.
Depending on the contract, the specific failure to act or improper action, and conditions and circumstances a breach may be considered either material or immaterial. Whether a breach is considered material or immaterial is dependent upon the contractual language and factors and circumstances present. Typically, parties are entitled to monetary damages for material, or serious, breaches.
There is one other circumstance when a breach has occurred. This is in the case where a party makes statements that give rise to a reasonable belief that the contract will not or cannot be completed. Consider a situation where a CEO or executive says to a contracting party, “I sure hope you guys have insurance because we’re flat-broke and shutting things down.” This is known as anticipatory breach.
What Remedies to Correct or Compensate for the Breach Are Available?
There are three main remedies that may be requested by the non-breaching party to be made whole. First, the party may request a court to grant monetary damages to compensate for the breach. Forms of monetary damages include:
- Liquidated damages – Some contracts may identify potential breaches and explicitly specify the appropriate amount of damages to be paid out for the breach. Liquidated damages should be considered in light of a reasonable estimate of the costs imposed by the breach and should not be imposed as a penalty.
- Compensatory damages – As the name suggests, damages of this type are intended to compensate a party for the expected benefit of the bargain it would have received had the breach not occurred. The goal of compensatory damages is to make the damaged party “whole” again. There are two types of compensatory damages. Expectation damages are intended to cover what the injured party expected to receive from the contract. Consequential damages are intended to reimburse the damaged party for indirect damages other than contractual loss. Consequential damages are often prohibited by contract. If not prohibited, to obtain them a plaintiff must demonstrate that they occurred as a direct result of the breach and were foreseeable to the parties when the contract was made.
However, in some situations money alone cannot adequately compensate the non-breaching party. For instance, consider the company that contracts with a famous artisan-entrepreneur whose past actions align with the company mission and who creates a one-of-a-kind product. Here, a court may order specific performance of the contract by the breaching party because money does not provide an adequate remedy. Or, under some circumstances, a court may order “restitution,” which generally allows the plaintiff to recover from the defendant the value of whatever was conferred to the defendant as a result of the contract.
Rely on an Experienced Baltimore, Maryland Business Attorney
Mr. Heyman has more than 20 years of experience handling complex contractual matters, disputes between businesses and corporations, and other complex commercial matters. Mr. Heyman brings big-law experience while providing individualized attention with a strategic approach. To schedule a confidential consultation with a Baltimore business lawyer at the Law Firm of William S. Heyman, call (410) 305-9287 or contact the firm online.