Solid contracts form not only the foundation of businesses in California and across the country, but are also the glue that holds together relationships within a company as well as to other entities. Business entities depend on contracts to keep operations running as well as to protect their interests.
But what happens if one party does not uphold the terms of the agreement? Whether it is due to events that are out of their control, such as unexpected delays, a brake in the supply chain, or financial problems, when one party fails to perform according to the terms of the contract, the other party may sue them for breach of contract.
Material or immaterial breach?
Depending on whether the breach was material or immaterial, the choice of legal action will differ. In an immaterial or minor breach, the injured party can hold the other party liable for damages but cannot end the agreement. A material breach, on the other hand, is a failure to perform under the terms of the agreement that is so serious as to void the contract. Called a total breach, the injured party may end the agreement and sue for damages.
When one side alleges a breach of contract, there may initially be attempts at an informal resolution. If the amount in question is minimal, it is possible for the parties to settle the dispute in small claims court. If these efforts fail, however, the dispute may end up in court.
What are the guidelines for ruling on a breach of contract?
There are guidelines that the court will consider when determining how serious the breach is and whether there will be an excuse from performance under contract, as well as an award for damages. The questions the court must ask are:
- Was the breach intentional?
- What is the extent to which the breaching party has performed?
- Will the breaching party continue to perform under current terms?
- What benefit has the injured party gained despite the breach, and what figure is fair compensation?
- What is the burden to the breaching party should the injured party end the contract on a ruling of a material breach?
The remedies for a breach of contract may range from a liquidated or punitive award, a requirement that the breaching party perform under contract, to voiding the contract and restitution of the contract by the injured party. In California, the non-breaching party must file a claim within four years of the date when the breach occurred.