Breach Of Contract
Breach of contract is a very broad term that covers a range of varying violations. The questions raised when a contract is breached include, but are not limited to: What is the breach? Who committed it? When did the breach occur? What are the damages caused by the breach? The following article will explore how to approach a breach of contract and the multitude of questions that arise following a breach.
Full Performance or Partial Performance of Contract
California Civil Code Section 1473 dictates that full performance of a contractual obligation, by the person assigned to perform the duty, or any other person on their behalf, satisfies the obligation if accepted by the creditor. While this particular code includes several conditional clauses, it is somewhat clear that full performance will satisfy any contractual obligations.
The timing and method of satisfying your contractual obligation are of great importance and relevance. In the case Nguyen v. Calhoun (2003) 105 CA4th 428, 439, 129, CR2d 436, the court ruled that full payment did not meet the obligation of the contract because it was submitted 3 days after the foreclosure sale, and so the sale could not be set aside.
In the same vein, California Civil Code Section 1475 states that an obligation in favor of several persons is extinguished by performance rendered to any one of them. Nonetheless, see Hurley v Southern Cal. Edison Co. (9th Cir 1950)183 F2d 125, the Court commented this code section should apply only if: the obligor (the person obligated to perform) can rightly assume that the obligee (the person to whom the performance is rendered) will account to the other obligees.
Elements of Breach of Contract
In the state of California, the Plaintiff is required to provide at least four of the following elements to initiate breach of contract cause of action:
- Breach Of Contract
- Existence of Contract
- The Plaintiff’s Performance or Lack of Performance due to an Excuse
- The Defendant’s Breach of the Contract
- The Plaintiff’s Damages As A Result of Defendant’s Breach of Contract.
Need to Demand Performance Under the Contract
Unless a strict time frame is provided in the contract, the Plaintiff should first seek to demand performance before they seek legal action. If there are no time constraints stated in the contract, Defendant is in breach only after an attempt to collect payment has been made and evaded by the defendant. Although there is an exception to this requirement, and that is if as the result of Defendant’s delay in performance, Plaintiff has suffered to the extent the performance had become valueless to the Plaintiff AND Defendant knew the delay would render performance valueless. See Leonard v. Rose (1967) 65 C2d 589.
Total or Partial Breach of Contract
A total breach of contract occurs when a party fails to perform any of the obligations under a contract. A partial breach is when a party only fails to perform select obligations. These two distinctions have contrasting legal recourse, which often depends on whether the breach is material or immaterial.
If a breach of contract can be characterized as material, then it excuses the performance of the contract by the non-breaching party and could constitute grounds for rescission. Adversely, if a breach of contract is immaterial, it does not excuse performance by the non-breaching party, but it only gives rise to damages.
A total breach is considered a material breach and is grounds for a rescission of the contract. Meanwhile, partial breaches are not necessarily material breaches. The Court in Integrated, Inc. v. Alec Fergusson Electrical Contractor 1967) 250 CA2d 287 , stated that “[i]f the covenant be of minor importance, not going to the root of the matter, and one that can be readily compensated in damages, the party injured cannot rescind, but must perform his part of the contract and seek compensation in damages.”
It is critical in breach of contract cases to determine what constitutes a material breach. The Court in Sackett v. Spindler (1967) 248 CA2d 220, defined the following factors to determine if a party’s partial breach constitutes material breach:
- The extent the injured party receives a benefit under the contract that the injured party has reasonably anticipated
- The extent the injured party may be compensated for the damages incurred because of the breach of the contract
- The extent the breaching party has already performed or has made preparations for the performance
- The level of hardship on the breaching party
- The willful, negligent or innocent failure to perform by the breaching party
- The level of uncertainty that the breaching party will perform the contract
Timing of Breach of Contract
A breach of contract cannot occur until the set timeframe for performance has come. Even at that time, there is no action unless there are damages. So threats of non-performance before the timeframe for performance arrives triggers the legal concept “anticipatory repudiation”.
There is often no action for breach of contract until the time for performance has come and there is a failure to perform. But, if a party breaches the contract by implication or otherwise, the other party is able to invoke what is called “anticipatory repudiation”. Anticipatory repudiation
Allows the non-breaching party to stop performing and seek damages before the time for performance has arrived.
Anticipatory Repudiation has been codified in California Civil Code Section 1440:
“If a party to an obligation gives notice to another, before the latter is in default, that he will not perform the same upon his part, and does not retract such notice before the time at which performance upon his part is due, such other party is entitled to enforce the obligation without previously performing or offering to perform any conditions upon his part in favor of the former party.”
Express or Implied Repudiation
- Express repudiation is a “clear, positive, unequivocal refusal to perform”, seeTaylor v. Johnston (1975) 15 C3d 130. The instance of breach or repudiation of the contract must be done in clearcut terms, by a positive act or statement from the party that they cannot or will not substantially perform the essential terms of the contract, see Machado v. Machado (1961) 188 CA2d 141. Any uncertain terms would not be considered sufficient.
- Implied repudiation “results from conduct where the promisor puts it out of his power to perform so as to make a substantial performance of his promise impossible.” See, Taylor v. Johnston (1975) 15 C3d 130.
Non-Breaching Party’s Options After Anticipatory Repudiation
- Terminate the Contract: The contract may be terminated and damages sought immediately by the non-breaching party
- Wait and See: The non-breaching party may threaten repudiation but choose to wait until the performance is due. In this case, the non-breaching party will not lose contractual rights to sue for breach.
- Seek Resolution: The non-breaching party may try to resolve the issue amicably. If this does not result in cancellation, modification, or repudiation of the contract, then the breaching party has the option to bring suit for anticipatory resolution.
Damages in Contract Law
Damages in contract law exist to restore the injured party to the position they would have been in had the breaching party fully honored the contract.
In California, the general measure of damages for breach of contract is codified in CA Civil Code section 3300:
‘For the breach of an obligation arising from contract, the measure of damages, except where otherwise expressly provided by this code, is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom.”
Foreseeability is a requirement to seek damages in a contract breach. This has been codified in the CA Civil Code Section 3300, stated above. CA Civil Code Section 3300 incorporates “proximity caused thereby” and “be likely to result therefrom”. Such language denotes foreseeability. In the significant case of Hadley v Baxendale (1854) 9 Ex 341, 156 Eng Rep 145, the Court explains:
“Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered as either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated”.
The principle of foreseeability helps to fairly assign risks between parties. If the breaching party could not have reasonably anticipated the coming damages caused by their failure to fulfill the contract, then the risks could not have been fairly allocated, to begin with.
The requirement of reasonableness for breach of contract damages is mandated by California Civil Code Section 3359.
This section in pertinent part provides: “[d]amages must, in all cases, be reasonable, and where an obligation of any kind appears to create a right to unconscionable and grossly oppressive damages, contrary to substantial justice, no more than reasonable damages can be recovered.”
Reasonable certainty dictates that any damages deemed speculative are not permissable in damages for breach of contract. CA Civil Code Section 3301 states: “No damages can be recovered for a breach of contract which is not clearly ascertainable in both their nature and origin.”
Though, it is important to make the distinction that while the damages must be ascertainable, the number of damages may be a reasonable approximation.
This is important to note that even though the damages must be ascertainable, the number of damages may be a reasonable approximation.
In the case of Acree v. General Motors Acceptance Corp. (2001) 92 CA4th 385, the court stated: “the number of damages need not be proven with absolute certainty if the fact of damage is clear.”
General Damages and Special Damages
General damages flow directly and necessarily from breach of contract. Therefore, General damages should have been reasonably anticipated by the parties when entering into the contract.
Special damages are not directly or necessarily caused by the breach of contract. Special damages are caused by secondary or unique consequences of the parties actions or inactions. To recover special damages, the breaching party must have been made aware of the special circumstances when they entered into the contract.
The Court in Lewis Jorge Construction Management, Inc. v. Pomona Unified School Dist. (2004) 34 C4th 960, emphasized that “a party assumes the risk of special damages liability for unusual losses arising from special circumstances only if it was ‘advised of the facts concerning special harm which might result’ from the breach—it is not deemed to have assumed such additional risk… simply by entering into the contract.”