When it comes to the holiday season, we all hope for peace, joy, and a little bit of magic. But when contracts get as chilly as the winter air, it’s important to know your rights and options. If you’re faced with a breach of contract situation, here’s what the “Legal Clause” has to say about keeping your contracts merry and bright.

1. Make a List, Check It Twice

A breach of contract means one of the parties has failed to perform a “material” part of the contract. A term is “material” if it is an important, primary, or significant aspect of the contract.

More often than not, the remedy for a material breach is that the non-breaching party is generally both excused from their further performance under the contract (if any remains due) and also entitled to seek from the breaching party a court-ordered award of monetary damages that result from the breach. As a general proposition, the non-breaching party must prove their damages with reasonable certainty and establish a causal link between the breach of contract and the damages suffered.

1. Unwrap the Damages:

Damages include those direct damages that immediately stem from the breach as well as the potential for indirect “special damages,” which is then broken down further into “incidental” and “consequential” damages. Incidental damages are extra expenses incurred by a party as a result of the breach. Consequential damages are losses to the party that indirectly flow from the breach, such as damage to other property, damage to persons, lost profits, lost goodwill/customers, lost use. Consequential damages must generally be a known or reasonably foreseeable result of the breach—if an item of claimed consequential damages is way out in left field, it will probably not be awarded.

Even in the situation of a “non-material” breach, the party who breached may still be responsible for damages. But a “non-material” breach is generally more minor, and it will be incumbent upon the non-breaching party to prove they suffered damages from this minor breach.

1. Sometimes the best gift is a fresh start:

“Rescission” is the concept of the non-breaching party essentially requesting to undo and terminate the contract as if it never existed. A party seeking to rescind a contract must prove that the breach was material. Upon such proof and request for rescission, the court will attempt to place the parties back in the position that existed before the contract was formed. The rescinding party cannot, however, seek any additional monetary damages that may have been suffered. To obtain such additional monetary damages, the non-breaching party must affirm the existence of the contract, leave the party’s rights and responsibilities as they stand, and seek to calculate the additional monetary damages suffered.

1. Force that gift to be delivered:

Clients often want to know if they can force a breaching party to affirmatively perform what remains due under the contract. This is called “specific performance” or sometimes “curing the default,” and frequently, the answer is “no,” a court will not force a breaching party to complete its performance. The parties can always agree to complete their performances to remedy a dispute, but courts will usually not force them to do so. The remedy from the court is to award monetary damages.

Specific performance can be awarded, however, in certain circumstances. The contract has to be so unique that the non-breaching party will be unable to obtain substitute performance elsewhere. The most typical example is the purchase of real estate. The law presumes that real estate is inherently unique and may allow a buyer to force a sale by a breaching/reluctant seller to be completed to ensure the buyer gets the benefit of obtaining the unique real estate that they contracted to buy.

1. Event Santa mitigates losses:

Another issue that can crop up is an obligation on the non-breaching party to “mitigate” its damages, in other words, make reasonable efforts to reduce the accumulation of damages if possible. A typical example is a landlord’s obligation to attempt to find a replacement renter if an existing renter breaches the lease and moves out early. If the landlord fails or refuses to make such efforts, a court might deny some of the landlord’s lost rent damages due to their failure to mitigate their damages.

This holiday-themed guide can bring a touch of festive fun to the serious topic of contract breaches while emphasizing the importance of preparedness and professional support. If you have any questions contact our team at 651-439-2878.