Breach of Contract
It is not uncommon for parties entering an agreement to want everything in writing. Doing so serves several purposes. First, it eliminates the obvious problems when each party's memory is the only proof of the parties' agreement. With a writing, each party can refer back to it in order to remember exactly what it agreed to do. Second, there is something for the court to review in the unfortunate, yet not uncommon, event that there is a breach of contract i.e. one party fails to fulfill his end of the bargain. Simply putting an agreement into writing though does not guarantee that it will be enforceable; but it usually helps. Some contracts MUST be in writing to be enforceable. The laws that state which contracts must be written to be enforceable are known generally as the Statutes of Fraud and usually include contracts for the sale of land or contracts over a certain dollar amount.
Elements of a Prima Facie Breach of Contract Case
When a party does not fulfill his obligations under the contract, it is called a breach. To establish a breach of contract, the non-breaching party generally must prove three things: (1) the existence of an enforceable contract; (2) that the party seeking to enforce the contract has performed its obligations (i.e. is not in breach itself); and (3) that the breach was material. Having the terms of the agreement written down is the first step towards proving the existence of an enforceable contract. However, it is not the only step. Contracting parties should take care to draft the contract so that it:
- Contains the entire agreement in clear, understandable language. A properly drafted contract should not be full of legalese or only able of being understood by an attorney. A clearly written contract prevents arguments over what a party’s obligations are or aren’t. It also prevents a party from claiming a mistake of fact or law. If a court agrees that the contract is not clear or doesn’t contain the term the party is accused of breaching, a court will not likely hold the breaching party liable;
- Contains a mutuality of obligation. Each party must bear some responsibility to the other. While the obligations do not need to be exactly equal, they must exist for each party. An easy example is an agreement to sell a house. One party agrees to provide an agreed-upon amount of money while the other agrees to provide the house;
- Legality. A contract cannot require either party to do something illegal. An example of an illegal, and consequently unenforceable contract, would be any contract involving prostitution or the sale of illegal drugs.
Establishing the existence of an enforceable contract is a start. Next, the party must establish that it has performed its obligations. A party in breach of a contract cannot enforce the contract. Therefore, it is essential for a party to demonstrate to the court that it has performed its obligations under the contract and is entitled to enforce it.
Finally, the party must establish that the other party materially breached the contract. While failure to perform any term of the contract is a breach, not every breach is a material breach. A breaching party will only be liable for damages for materially breaching the contract. In short, a material breach is a major or serious breach.
Performing most of a party’s obligations under the contract, with only minor deviations from the contract’s terms, is called substantial performance. A party who substantially performs under a contract will not be liable for full contract damages but only for the part of the contract not performed, assuming the part not performed is material. For instance, say a homeowner hires a roofer to install a new roof for $8,000 and the contract says the roofer must clean up after himseIf. If the roofer installs the roof but leaves trash behind, the roofer will not be required to pay the homeowner the entire $8,000 he received because he has substantially performed under the contract. The roofer may be required, though, to pay the homeowner the cost of cleaning up the trash, assuming there was enough trash left behind that it would amount to a material breach of the contract.
The non-breaching party must also prove damages. To have a valid breach of contract claim, the non-breaching party must suffer injury (usually monetary) from the breach. In most cases, this will be the money the lost as a direct and foreseeable result of the other party’s breach. After proving all required elements including damages, the court can enter judgment against the breaching party. In most cases, the cost of bringing the lawsuit alone does not constitute damages which means that the party suing must have suffered some other damages from the breach.
Common defenses those accused of breaching a contract assert include:
- Lack of Capacity - Certain people, such as minors and the mentally ill, lack the legal capacity to enter a contract. A child being sued for a breach of contract could avoid liability by asserting this defense arguing that she lacked the capacity to enter the contract in the first place.
- Fraud – The two most common types are fraud in the inducement and fraud in the execution. A party defending against a breach claiming fraud in the inducement argues that he only entered the contract because of false statements made by the party attempting to enforce the contract. A party defending against a breach arguing fraud in the execution is arguing that he didn't know he was entering a contract because the other party misrepresented what was being signed. A party who successfully establishes either of these types of fraud will not be liable for breaching the contract.
- Coersion - A party who is forced against his will to enter a contract will generally not be held liable for breaching the contract. The coercion can be either economic or physical.
- Unconscionability - A contract that which is grossly unfair or one-sided in favor of the party trying to enforce it will be considered unconscionable. The most common scenario in which this defense arises is when the party trying to enforce the contract has much more bargaining power than the other and has taken advantage of that imbalance of power to include unfair terms in the contract.
- Estoppel – this occurs when one party makes a statement about the contract upon which the other party relies to his detriment. A party who tells the other he will accept an amount less than that called for by the contract cannot later sue for the unpaid amount.
- Breach by both parties – “Under contract law, a party in breach may not enforce the contract.” James v. Lifeline Mobile Medics, 341 Ill. App. 3d 451, 455 (4th Dist. 2003). In other words, a court will not reward a party who breaches a contract by awarding him damages for the other party’s breach of that same contract. This concept is similar to the often-repeated rule that “courts will only help parties who sue with ‘clean hands.’”
The attorneys at DiTommaso ♦ Lubin have decades of experience litigating breach of contract cases. With offices conveniently located in DuPage and Cook counties, we represent clients throughout Chicago and the Chicagoland area including Wheaton, Hinsdale, and Deer Park. To consult with an attorney today can contact us online or give us a call toll-free at 877-990-4990.