When Does a Breach of Contract Occur?
UPDATED: June 19, 2018
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People often wonder if they should take action against another when a breach of contract occurs. The answer depends on the nature of the contract itself. If the contract is vague, then a breach may be tough to prove. If the contract is specific, then a breach will be easier to prove. A breach of contract can occur during both simple and complex transactions. First, let’s identify what a contract is and is not.
Does A Valid Contract Exist?
In its purest form, a contract exists when there is an offer and an acceptance of that offer. If I offer to mow your lawn for ten dollars and you accept that offer, then we have a contract. Once I mow your lawn, you are obligated to pay me ten dollars. Does the law require the contract to be in writing to be legal? Not in this example. Most oral contracts are legally binding but can be difficult to prove later on. But some state laws, known as a Statute of Frauds, require certain contracts to be in writing, such as contracts dealing with real property.
Say I offer to mow your lawn for ten dollars and you don’t say anything; this is not a contract because you didn’t accept. What if I offer to mow your lawn as a return favor for you having picked up my mail the previous week? Again, there is no enforceable contract. Rather, these are simply kind acts, or gifts, by two neighbors.
The biggest mistake most people make is the failure to get the specifics of a contract set forth. A contract should state clearly what each party is going to do and when he or she is going to do it. It's always best to establish this in writing even though an oral contract can be legally binding.
When a Contract Breach Occurs After a Failure to Perform
A breach of contract can occur when a party fails to perform an obligation that resulted from a valid offer and acceptance. Disputes often arise regarding whether the contract was valid, the quality of the performance, whether certain conditions were required before the obligation existed, and other factors that may relieve one party from performing their obligations. These situations are discussed below.
A contract may be invalid or even illegal for many reasons. A person under the age of eighteen may not enter into a binding contract, so any such contract is invalid and unenforceable. Other contracts may require a party to perform an illegal act and such a contract would also be invalid and unenforceable.
One party may be unhappy with the quality of the other party’s performance and try to hold him accountable for a breach of the contract. For example, you may say that I did a poor job of mowing your lawn and that is why you are not going to pay me ten dollars. If I believe I did a fine job I might sue you in small claims court. This becomes a question of evidence and the reasonableness standard. The judge will first determine if there was a valid contract and, if so, will then examine any photographs that I took. If the judge agrees with me, I then obtain a judgment against you for the ten dollars. If the judge agrees with you, then I don’t.
What is known as a condition precedent means that something needed to happen before one of the parties was required to perform his or her obligation. If I agree to buy your classic car if the bank approves a loan for me, then I am not obligated to buy your car when the bank denies my loan application; this loan was a condition precedent.
There are a few other factors that may relieve a party from performing under a contract. A common example is an "Act of God." If I agreed to sell my car to you tomorrow, but overnight a tornado came along and carried the car away, I would be relieved from selling my car to you.
Get All Contract Details in Writing
Write down the terms of your contract and have both parties sign and date it. The legal language in a formal contract is important and for high value contracts, an attorney should be consulted. For simple contracts you’ll still need to get the terms down in writing. This will give you something on which to build a case when you believe the other party has breached the contract. Furthermore, with this evidence in hand you are more likely to avoid a lawsuit in small claims court because the other party’s liability will be clear and easy to prove. But even if you do have a clear case of breach of contract, remember that going to court and getting a judgment against that party is only the first step. Enforcing a judgment and actually collecting damages can be another matter.
If one side fails to stick to his or her part of the bargain, a breach of contract occurs. Such a contract breach happens when: one party to a contract makes it impossible for the other parties to perform; one party to the contract does something against the intent of the contract; or a party absolutely refuses to perform the contract.
Not all breaches of contract are necessarily "contract killers" which can end up in a lawsuit. Much of the outcome depends on whether the breach is material or immaterial and who the parties are. If the breach is immaterial, you may have the option to: ignore or excuse the defect and continue on as if nothing occurred; point out the problem to the responsible side and give him or her an opportunity to fix it; refuse to pay anything more until it is fixed; or correct the work yourself and deduct the cost from any payment. When a breach of contract occurs, your best option will depend on the facts. Where the matter is substantial, the advice of a contract attorney can help you.