Contracts are created to establish the responsibilities and expectations of parties that choose to engage in business transactions with one another, whether they involve business to business transactions, construction or licensing agreements, or the employee / employer relationship. They also provide for recourse and remedies for when things don’t go as planned.
At Hendershot Cowart P.C., our Houston business law attorneys draw from decades of collective experience to help clients prevent and mitigate damages that may result from breaches of contract – or the failure, without legal excuse, to perform any promise contained in a binding and legally enforceable contract.
There are three types of contract breaches:
Also referred to as a partial breach, a non-material breach occurs when one party fails to perform a minor, nonessential obligation stipulated in a contract, even when the specified product or service is ultimately delivered. This may occur when one party meets all demands made by the other party in a contract, but completed them a day after completion was requested.
Unless there were terms in the contract specifying deadlines or that time was of the essence, a reasonable delay would be considered a minor breach. In cases involving a non-material breach of contract, the non-breaching party is entitled to damages, if it can be shown they actually suffered damages, but is not typically prevented or excused from performance.
Material / Fundamental Breach
A breach of contract is considered material if the breaching party failed to complete terms fundamental to the contract’s satisfactory completion. A material breach may mean the contract cannot be completed.
Determining whether a breach of contract can be considered material requires a review of the unique facts involved, including the extent to which the breaching party has already performed, whether the breach was a result of negligence, an honest mistake, or an intentional act, the likelihood of the breaching party performing the rest of the contract, how the non-breaching party was deprived of benefits they reasonably expected, and whether the non-breaching party can be adequately compensated.
A material breach of contract may provide the right to sue for damages if damages can be shown. If damages cannot be reasonably calculated – such as in the case of theft of trade secrets or violations of non-compete or non-disclosure agreements – the non-breaching party may seek an injunction to stop the other party from continuing the breach. Depending on the nature of the relationship between the two parties, the non-breaching party may also choose to request a court order requiring all parties to complete contractual terms, or re-form the contract to facilitate performance and completion by the other party.
An anticipatory breach of contract, or anticipatory repudiation, occurs when it becomes clear that one party will not meet its contractual obligations, such as when one party indicates it cannot uphold its part of the contract or refuses to do so. This allows the non-breaching party to terminate the contract and sue for damage prior to the breach.
Mitigating damages and avoiding unnecessary costs in cases involving an anticipatory breach requires swift action by the non-breaching party. In construction contracts, for example, a non-breaching party can hire a new contractor to complete a project when the first indicates they do not have the ability to perform in order to mitigate damages, and then sue for what was lost.
Handling any breach of contract requires a comprehensive review of the individual facts and circumstances. Our attorneys counsel clients in what to do when another party breaches a contract and what available options they have, from pursuing legal remedies and litigation that allow for a recovery of damages to solutions that may provide more negotiation power later on in a business relationship. Backed by our extensive experience and resources, we help clients effectively pursue the most appropriate course of action given their unique needs and objectives.
If you wish to discuss a breach of contract, dispute, or any other business law matter, our legal team at Hendershot Cowart P.C. is available to help. Contact us to request an initial consultation.