What is a Breach of Contract?
Common cases involve:
- failing to deliver goods or services as promised,
- interfering with another party’s ability to meet its obligations, or
- not paying another party within a certain time frame.
There are generally four types of breach of contract cases:
- Minor Breach: A party fails to perform part of the contract, though the main goods or services were delivered
- Material Breach: A party delivers something materially different from what was agreed upon in the contract
- Actual Breach: A party refuses to deliver the goods or services as obligated or delivers incomplete goods or services
- Anticipatory Breach: A party announces in advance of the agreed-upon deadline that they will not fulfill their obligations
Following is a typical example of a breach of contract case similar to one we recently successfully managed.
Breach of Contract Case Example
Your marketing firm is hired by a home-lending company for the purpose of identifying new leads, specifically people looking for home financing. Setting up an online presence and pop-up forms on the lending company’s website are among the tactics you will use to meet your objective. The contract you sign states that your firm may be terminated at any time and for any reason, as long as the client gives appropriate notice dictated by the terms of the agreement.
For almost a year, you provide new leads without issue. Your client never rejects a lead and never requests a lead replacement or pro-rata reimbursement for a lead that was later declared “non-compliant.” In fact, your client approves the leads and instructs you to expand steadily into additional markets.
Therefore, you are taken by surprise when your client terminates the marketing contract without providing the obligatory notice period. Even worse, your former client sues you seeking to recoup all the fees it has paid over the course of your 11-month contract.
The contract does not require that the leads you supply result in closed real estate financing loans —instead, so long as the leads contain the contractually agreed-to criteria, you are compensated.
The lending firm’s responsibility is to follow up with the leads and close the deals.
According to the contract, if the company finds a lead to be non-compliant, it can withhold payment. The steps include a deadline to object to the lead and two options whereby your firm would either find a replacement lead that was not objectionable or pay a pro-rata reduction or credit towards the purchase price based on the number of noncomplying leads. Not only does your client fail to take steps under the contract to reject the leads provided, but it also continues to expand the scope of your work.
Further, when your client terminates the contract without adhering to the required notice, you are stuck with the significant advertising expenses, as well as the time and effort expended for leads generated during the period of time which notice should have been given to terminate.
Under the advice of counsel, you counter-sue for the substantial fees you acquired, which your former client could have prevented had they complied with the contractual notice period. You argue that, upon termination, your former client was required to pay all fees due for the leads delivered prior to the effective date of termination.
Like many contract cases, the case is litigated in arbitration because of an arbitration clause in the contract mandating that forum. An arbitration clause instructs that the dispute is resolved in a private forum rather than through the court system. If the arbitration clause is valid, filing a lawsuit in a civil court can be a breach of the contract in and of itself.
What to Know about Breach of Contract Cases
Given the ubiquity of contracts, it’s not surprising that breach of contract cases are so common in commercial litigation. While you can’t control the behavior of a party you enter into a contract with, you can mitigate your risk.
The best way to avoid breach of contract cases is to enlist counsel to review any contract before you enter into it. While a commercial litigation firm like ours does not typically draft contracts, we are in a unique position to anticipate potential pitfalls and advise on whether the terms of a contract are favorable to you or your company. If you do find yourself entangled in a breach of contract case, be sure to enlist legal counsel that is highly experienced in managing such cases in court or arbitration.