Breach of Contract
Business owners often enter into contracts, drawn up with the assistance of their business attorneys, to form partnerships, purchase property, develop products, or protect ideas. Contracts are designed to protect business transactions and the future success of a business and its owners.
A contract is an agreement (implied, oral or written) between two or more parties to do something or not to do something. For a valid contract, three elements must be determined:
• Agreement on the terms and conditions.
• Intention of the parties forming the contract.
• The contract is supported by consideration.
A contract “breach” is the failure to fully perform a duty of the contract without legal excuse. A breach can be “material” or “total,” or the breach can be “simple” or “partial.” A material breach occurs when the duty not performed affects the central purpose of the contract. Under this kind of breach, you can end the contract and consider seeking damages against the party who breached the contract.
In a simple breach of contract, you are not permitted to end the contract, but you can consider seeking damages. If you consider seeking damages, be aware that you have a duty to mitigate damages without delay, even if the other contracted party has breached your contract. The determination of damages takes into account a number of circumstances including actual vs. potential income, incidental damages and consequential damages. You can’t recover damages that are speculative or based on conjecture.
To determine the best approach for identifying and pursuing breach of contract, seek out the assistance of a qualified Washington DC-based business law attorney. Michael Trevelline has helped business owners just like you recover damages resulting from breach of contract.
Damages for Breach of Contract
The first thing to know about damages is that if the other party has breached, you have a duty to mitigate damages. Even if the other party has breached, you cannot delay in taking reasonable steps to avoid impending damages.
You will be entitled to an amount necessary to place you in the economic position you would have been in had the contract not been breached. In general, calculate damages by calculating the amount of money or value you would have received had the contract not been breached; add incidental damages; add consequential damages, if any; subtract any money you saved since you did not have to complete the contract. As you can see, often the damages for a breach are little or none.
Since consequential damages must be foreseeable at the time of the contract, it is generally a good idea to make the other party aware as soon as possible of the extent and types of damages you will incur if he continues with the breach.
You cannot recover damages that are speculative or based on guesswork or conjecture. In many instances, this rule precludes the recovery of many elements of damage. This rule often limits recovery in lost profits sought by a new business since such profits are considered merely speculative. If the business is an ongoing business with a history of profits, damages may well include loss profits suffered through collateral contracts or from collateral sources if otherwise foreseeable and proved with certainty.
You may have the right to specific performance of the contract if the goods or services are "unique." This would include heirlooms, priceless works of art, output and requirements contracts, situations where the goods cannot be "covered" or replaced.
Some contracts contain a liquidated damage provision specifying the amount of damages or types of damages if the contract is breach.
Under certain circumstances, a breach of contract may also give rise to a tort cause of action and damages as well. For example, if the other party is to process your loan application and negligently fails to do so.
SAMPLE COMPLAINT FOR BREACH OF CONTRACT
1. Jurisdiction of this court is founded on D.C. Code Sec. 13-421
2. Powerhouse Ltd. is a District of Columbia limited liability company.
3. Electric Supply Co. Inc. is a Maryland corporation.
4. Utility Co. Inc. is a Delaware corporation.
5. On or about 10 February 2005, Electric Supply and Powerhouse entered into a verbal joint venture to purchase a windmill owned by Utility in order for the joint venture to resale the windmill.
6. Electric Supply and Powerhouse had entered into similar joint ventures several times in the past.
7. Plaintiffs allege on information and belief that Utility had on some time before 10 February 2005 entered into an agreement to buy the windmill since it was not the owner.
8. On 15 February 2005, an agent of the Electric Supply-Powerhouse joint venture met with an agent of Utility and agreed, substantially, that the Electric Supply-Powerhouse joint venture would buy the windmill for $500,000, $50,000 down, buyer obliged to remove the windmill within 180-days of 1 April and to pay the balance of the purchase price before the end of the 180 days and before removal.
9. The two men shook on the deal.
10. Before entering into the deal, the agent for the Electric Supply-Powerhouse joint venture made known to Utility's agent that the Electric Supply-Powerhouse joint venture was purchasing the windmill for speculative purposes and would be reselling it for a profit.
11. The following day, the Electric Supply-Powerhouse joint venture wrote a contract reflecting the previous day's verbal agreement, signed it, and faxed it to Utility.
12. On 16 February, the Electric Supply-Powerhouse joint venture wired Utility the $50,000 down payment.
13. An agent for Utility signed the contract.
14. The Electric Supply-Powerhouse joint venture alleges on information and belief that later when Utility negotiated with the owner of the windmill to purchase it, Utility learned that the owner insisted that the windmill be removed within thirty days.
15. When the Electric Supply-Powerhouse joint venture refused to modify the agreement, Utility repudiated by anticipation the contract by notifying the joint venture that Utility would not honor the agreement.
16. Utility returned the $50,000 down payment.
17. Before the Electric Supply-Powerhouse joint venture learned of Utility's repudiation, the joint venture had incurred $20,000 in costs and expenses in advertising the windmill for sale.
18. During the 180 day period, the joint ventures could resale the windmill for approximately $1,500,000 while incurring selling costs and expenses of approximately $25,000 not including the $20,000 in costs and expenses already incurred, thus making a net profit of $955,000.
19. By reason of the foregoing facts, the Electric Supply-Powerhouse joint venture has been damaged in the sum of $955,000, consisting of $20,000 of advertising expenses already incurred plus $1,480,000 in lost net revenues from resale minus $25,000 in selling cost and expenses avoided, minus $500,000 in contract payments.
Wherefore plaintiffs demand judgment against defendant for the sum of $955,000, with interest and costs, representing:
A. $20,000 in compensatory damages, general and special, for advertising expenses;
B. $935,000 in compensatory damages, general and special, for lost net profits.