What is
a Breach of
Contract?
Most contract
breaches are
easily
identified and
require no
definition. But
sometimes you
have a breach of
contract that is
not worth
pursuing. You
need to
determine
whether the
breach was
material
and caused
damages.
Say, for
example, you
hire a
contractor to
paint the
outside of your
office
building. The
contract
provides that
the job will be
completed by
June 1, but does
not provide for
any penalties
for breaching
the contract by
failing to
finish the
project by that
date (usually
called
"liquidated
damages"). June
1 comes and goes
and the job is
not completed.
You call the
painting company
and complain,
send a demand
letter, and
finally the
painters show up
and the job is
finished on June
9. Clearly
there has been a
breach of
contract, but
was it material,
and did it cause
damages?
In terms of
damages, did the
eight day delay
keep you from
renting office
space? Did it
prevent you from
using any
portion of the
building? Did
you lose any
tenants as a
result of the
delay? You may
have been
frustrated by
the delay, but
did it really
cost you any
money? You
see, the fact
that there has
been a breach of
contract does
not always mean
that you can or
should sue.
The Restatement
(Second) of
Contracts lists
the following
criteria to
determine
whether a
specific failure
constitutes a
breach:
In determining
whether a
failure to
render or to
offer
performance is
material, the
following
circumstances
are
significant:
(a) the extent
to which the
injured party
will be
deprived of
the benefit
which he
reasonably
expected; (b)
the extent to
which the
injured party
can be
adequately
compensated
for the part
of that
benefit of
which he will
be deprived;
(c) the extent
to which the
party failing
to perform or
to offer to
perform will
suffer
forfeiture;
(d) the
likelihood
that the party
failing to
perform or to
offer to
perform will
cure his
failure,
taking account
of all the
circumstances
including any
reasonable
assurances;
(e) the extent
to which the
behavior of
the party
failing to
perform or to
offer to
perform
comports with
standards of
good faith and
fair dealing.
American Law
Institute,
Restatement
(Second) of
Contracts § 241
(1981)
If the
breach of
contract was
flagrant, can I
sue for fraud?
Many
have the
understanding
that a breach of
contract action
can somehow
morph into a
fraud action if
the breach was
intentional or
caused great
harm. For
example, we
often get calls
from people who
have loaned
money to
someone, who
stops making
payments after a
few months. The
person is very
upset because
they were
depending on the
payments, and
now because of
the loan they
are missing
their own
payments and
suffering late
fees and damaged
credit. They
proclaim that
they want to sue
for fraud and
punitive
damages.
Breach of
contract
and fraud are
completely
different causes
of action and
normally occur
at different
times. To
prevail on a
breach of
contract cause
of action, you
basically need
only prove that
you performed
under the
agreement, but
the other side
failed to do
so. For fraud,
you must show
that the
defendant (1)
made a
misrepresentation,
(2) knowing it
was false, (3)
intending that
you rely on the
misrepresentation,
and that (4) you
justifiably
relied on that
misrepresentation,
(5) to your
detriment.
Thus, if the
defendant took
the loan fully
intending to pay
it back, that is
not fraud.
Stated another
way, fraud must
take place
before you
loan the money,
breach of
contract occurs
when the money
is not paid
back.
That is not to
say both cannot
occur. If the
defendant took
the money
knowing he could
not pay it back,
that is fraud.
And when he
later fails to
repay the money,
that is still
breach of
contract.
RESPECTED BY THE
LEGAL COMMUNITY:
"Perhaps it is
my age or 40+
years of
experience in
the law, but it
is compelling to
comment that the
performances of
both counsel in
this case, in
terms of
dedication to
the law, to
their clients,
and to their
scholarship make
me proud to
again call
myself a
'Lawyer.'"
-- Orange County
Superior Judge
Robert J. Polis
(Ret.),
commenting on
the performance
of counsel from
Morris & Stone.
