When a whale breaches, it lifts most of its body out of the water. When a party to a contract is dealing with a possible breach of contract matter, or a breach of contract lawsuit, it can feel like a fish out of water. We don’t really think there is a connection, but it’s a good excuse for a cool picture. We also thought it was too corny to write, “breach of contract can be a whale of a problem.” What do you think?
“Breach of contract” is one of those phrases people tend to throw around. At Rosenbaum & Taylor, P.C., we get calls from clients, and prospective clients, throughout Westchester County and all other parts of New York, asking whether they have a viable breach of contract action, whether another party has a viable breach of contract case against them and how our attorneys can help. As with so many things in law, and in life, the answer is often “it depends.”
When parties enter into an agreement, they generally sign a contract, or other document, or set of documents, which memorializes the terms of the agreement between, or among, the parties. The contract defines the legal obligations of the parties and outlines the ways in which each party’s interests are legally protected. When the parties sign, or execute the paperwork, they are formally agreeing that they will abide by, or follow, the terms and conditions set forth in the contract they signed.
As an aside, while parties can create enforceable oral agreements, the best practice is to use a written agreement. It is generally much easier to enforce a written contract. At Rosenbaum & Taylor, P.C., even when our clients have entered into handshake agreements with parties they know, and feel they can trust, we still always recommend that the terms of the agreement be reduced to writing. That way, they are not relying solely on memory, honesty, or loyalty, when it comes to discussing, or filing a lawsuit to enforce contract terms, or assessing whether there has been a breach.
For a party to prevail in a lawsuit on a breach of contract claim in New York, whether it is in White Plains, Westchester County, Manhattan, the Bronx, Brooklyn, or any other part of the state, the party seeking to pursue a breach of contract claim must generally prove four key elements:
- The existence of a valid, enforceable contract between the parties
- That the party seeking to enforce the contract materially performed its obligations under the contract
- That the party against which enforcement is sought failed to materially perform their commitments under the contract and
- That the party seeking to prove a breach actually suffered damages resulting from the other party not fulfilling its obligations
Breach of the contract means that a party has failed to obey the terms of the contract. All types of contracts, from construction to sale of goods and services, to real estate, to personal services and employment contracts and beyond, can be breached. A party can breach a contract in a variety of different ways. Under New York law, different types of breach cases are treated differently.
Contracts can be breached in a number of ways. For example:
- One party fails to do something it agreed to do
- One party openly declares that it will not abide by the terms of the contract
- One party to the contract fails to provide the goods or services it contracted to provide
- One party takes an action that renders the other party incapable of fulfilling its obligations under the contract
- One party to the contract fails to submit full and/or timely payments, in accordance with the contract terms
- One party fails to meet deadlines set forth in the contract and agreed to by the parties
- One party, whether intentionally, or unintentionally, misinterprets, or misapplies terms and conditions of the contract
Often, one party’s contractual performance is conditioned on another party fulfilling certain obligations under the contract. Sometimes, performance is conditional upon the completion of other obligations. At Rosenbaum & Taylor, P.C., our top contract attorneys have been contacted by clients, or prospective clients, concerned about payment terms in their contracts. In some contracts, payment may not be contractually required by the party receiving goods and/or services until the goods or services are deemed delivered. We work with parties to determine what would constitute a breach of the payments provisions of their contracts and if there has been a breach, whether the breach can be considered to be material. In some cases, our client is the party seeking to assert a breach of contract claim and in other cases, we represent a party against which a breach of contract claim is being threatened, or asserted. We work with our individual and corporate clients in fields ranging from construction, to property management, to manufacturing, to distribution and beyond, to analyze whether the breach they are dealing with is material. In this context, a material breach is a breach that is so substantial as to undermine, or defeat, the purpose of the contract.
Material Breach vs. Minor, Partial, or Immaterial Breach
There are two basic categories of breach of contract: material breach and a minor breach (also known as a partial, or immaterial breach). To determine whether the breach is material, or not, courts dealing with cases throughout New York City, Westchester County and all other parts of New York State analyze the extent to which the party that is not alleged to have breached the agreement, or contract, will be prejudiced or damaged if the contract terms are not fully performed. This inquiry can be complex.
Experienced, top contract dispute attorneys, like the ones at Rosenbaum & Taylor, P.C., help clients analyze the significance of possible breaches of contract on behalf of a party alleged to have breached, or on behalf of a party claiming there has been a breach. With that skilled analysis, the client, and its attorneys, are in the best position to assess strategic considerations and determine the best approach to the matter, whether that is negotiation, or bringing, or defending a lawsuit.
Courts in New York, whether in Manhattan, Westchester, the Bronx, Brooklyn, Queens, Nassau, Suffolk or other counties, generally look at a set of five factors to assist in their determination as to whether a breach of contract is material, in a given lawsuit, or legal case:
- The extent to which the party claiming the breach will be deprived of the benefit(s) it reasonably expected to receive, had the contract been fully performed. When looking at this factor, New York courts look at what benefit(s) the non-breaching party expected to receive, and was entitled to receive, under the contract and what, if anything, the breaching party provided, in terms of the services, or goods, expected to be provided under the contract.
- The extent to which the party claiming the breach can be appropriately compensated for the part of that benefit, or those benefits, which it will not receive. If the contract can remain in effect and the breach can be corrected with reasonable effort or expense, courts are less likely to consider it to be a material breach.
- The extent to which the party that breached the contract will suffer forfeiture. This factor looks at the degree to which the breaching party did perform. If the breaching party simply did not perform, the breach is likely to be material. If, on the other hand, most of the contractual obligations have been completed before the breach is claimed, the breach is less likely to be considered material.
- The likelihood that the party that breached the contract can, and is willing to, cure the breach. This factor includes analysis of whether the party that is alleged to have breached the contract is able to, and is willing to, correct the problem. The more likely the party that breached is able to, and is willing to, fix the problem, the less likely the breach will be deemed to be material.
- The extent to which the party that breached the contract comports with standards of good faith and fair dealing. If the breach was intentional, or done in bad faith, the breach is more likely to be considered to be material.
Material Breach
A material breach is a breach that is objectively significant, implicating issues at the heart of the purpose of the contract and preventing the contractual obligations from being performed and the goal of the contract from being met. When a material breach occurs, the non-breaching party can cease performing under the agreement and sue to collect the damages caused by the breach.
In addition to looking at the above factors, courts throughout New York also consider whether the subject contract addresses what will be considered a material breach. Parties often include contract language that reads that certain actions, or inactions, will be deemed to constitute a material breach of the agreement. At Rosenbaum & Taylor, P.C., when we draft, or negotiate, contracts for our clients, we often consider, along with the clients, whether such language is appropriate, or strategically desirable, or not, depending on the circumstances and subject matter of the contract. For example, we consider whether the failure to make full timely payments according to the payment schedule will constitute a material breach. We also consider issues like whether the failure to maintain insurance or the failure to attain set sales goals, will constitute a material breach of the contract. Since certain performances, or completion delays may not necessarily be considered material, we often discuss with our clients how we can craft a proper “time is of the essence” clause, to protect our clients’ interests.
Minor, Partial, or Inferior Breach
A minor, partial, or inferior beach occurs when a party fails to perform a term, or terms, of the contract, but when such failure, or failures, is not so significant as to impact upon the balance of the contract. The minor breach does not go to the heart of the central goal of the contract, so the contractual obligations can still be fulfilled. Under these circumstances, the party that is claiming that there was a breach remains obligated to perform its obligations under the contract, but can still sue for damages.
Anticipatory Breach/Anticipatory Repudiation
An anticipatory breach, or anticipatory repudiation, occurs when a party to a contract advises the other party, or otherwise makes it known, that the first party will not be able to fulfill its obligations under the contract. Under such circumstances, the party that did not breach the contract, or does not signal its intention to breach the contract, should avoid incurring extra costs or expenses. If the non-breaching party does not attempt to mitigate its damages, it may not be able to recover the additional damages that it incurred.
Damages That May Be Available for Breach of Contract
Located in White Plains, in Westchester County, New York, the top contract attorneys at Rosenbaum & Taylor, P.C. handle breach of contract claims throughout New York State. They have helped clients pursue and collect damages arising in a wide range of contractual relationships, from property management to retail, from construction to service providers and from personal services to manufacturing, and beyond.
In a breach of contract action, there are different types of damages that may be recoverable. The types of damages that may be recoverable depend on the type of contract at issue. A party alleging that another party has materially breached their contract may seek direct damages, which, broadly, is the difference in value between the goods, and or services, that were to be provided and what, if anything, was actually provided. The party asserting a breach of contract claim may also, under the right circumstances, seek to recover consequential damages, which can include categories like lost profits, loss of goodwill, and costs associated with correcting the breach.
Top New York contract attorneys, like those at Rosenbaum & Taylor, P.C., know how to prosecute breach of contract claim lawsuits, seeking to maximize the recovery. They also have the skills and experience to know how to defend breach of contract claim cases, where they work to minimize the recovery.
A party asserting a breach of contract claim cannot recover damages that are speculative. There must be some basis for the damages that the party seeks. Broadly speaking, there are two types of damages that may be appropriate in breach of contract cases: compensatory damages, also known as actual damages, and consequential damages, also known as special damages.
Compensatory Damages
Compensatory damages are damages intended to put the non-breaching party in the same position it would have been in, had the breach not occurred. For example, the non-breaching party may be awarded compensatory damages to cover the costs and expenses associated with replacing the goods and services that the breaching party failed to provide under the contract.
Consequential Damages
Consequential damages are damages that are reasonably foreseeable and related to, but not directly connected to the breach of contract. For example, a Court may award a non-breaching party compensation for business it lost due to the other party’s breach of the contract.
Other Breach of Contract Considerations
Duty to Mitigate
Under New York law, parties who have been damaged as a result of a breach of contract have a duty to mitigate, or decrease, the severity of, their damages. There is a duty for the non-breaching party to take actions to minimize the losses it suffered from the breach of contract. If the losses incurred by a non-breaching party could have reasonably been avoided, the court may not award damages for that loss in the case of a lawsuit.
Nominal Damages
Nominal damages are damages that are awarded when a breach of contract occurred, but there was no real harm to the non-breaching party as a result of the breach. When nominal damages are awarded, it is often because the court wanted to acknowledge which party was “right,” but since there was no harm, there is no significant damages award.
Liquidated Damages
The parties’ contract may provide for “liquidated damages.” Liquidated damages are the amount the parties have agreed to pay in the event of a breach. Liquidated damage provisions are often included in contracts where it would be difficult to quantify the amount of damages in the event of breach. Courts will enforce liquidated damage provisions when they are reasonably related to anticipated losses caused by the breach of contract.
Legal Fees
In the United States, each party in a breach of contract lawsuit bears its own legal fees and expenses. That said, some contracts do provide that the prevailing party can recover its legal costs and fees from the party that breached the contract.
Punitive Damages
Generally speaking, under New York law, punitive damages are not recoverable in breach of contract cases.
Specific Performance
Specific performance is generally only awarded to a non-breaching party, in a lawsuit, when there is no other adequate remedy, a monetary award cannot compensate it and when the performance duties under the contract are difficult to value. When the court award specific performance, it is ordering the party that breaches the contract to perform its obligations under the contract. Specific performance is sometimes awarded in a lawsuit when the seller of a plot of land breaches its contract to sell the land. Under such circumstances, a New York court may order the landowner to complete the sale because, by its nature, land is unique and the same land cannot be purchased elsewhere.
Recission
A non-breaching party may be entitled to recission of the contract, or damages, but not both. Rescission occurs when a court effectively cancels the contract and restores the parties to the positions they were in before they executed the contract. Recission is generally only granted when the non-breaching party has no other adequate remedy, but it can return to the same position it was in before it entered into the contract.
Contract Reformation
Contract reformation is a remedy that is rarely granted. A party seeking reformation is arguing that the contract does not accurately reflect the agreement the parties reached. The court may then impose new contract terms.
Contact the Contract Dispute Lawyers at Rosenbaum & Taylor, P.C.
At Rosenbaum & Taylor, P.C., our top contract attorneys have the skills and experience to assist with a wide range of contract dispute matters, whether there is already a lawsuit, or not. Call us at 914-326-2660 or contact Dara, or Scott, by email to DLR@rosenbaumtaylor.com or SPT@rosenbamtatylor.com to see how we can help you.
