Breach of Contract

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Breach of Contract

Actions for Breach of Contract

Contracts are simply legally binding agreements between individuals and entities. Contracts can effect every aspect of our business and personal lives. Contracts are how purchases and sales are made and how agreements to provide services, benefits, insurance, and goods are established and enforced.

Contracts generally fall into three classes:

  1. Contracts for the purchase and sale of real estate
  2. Contracts for the purchase and sale of other kinds of property
  3. Contracts for services

If you have been harmed by a broken contract, the Michigan civil litigation lawyers at Seikaly & Stewart are prepared to help you.

The Statute of Frauds

Certain contracts have to be in writing, or they will not be enforced – no matter how clear the evidence is that the contract was made. The main categories of contracts that must be in writing are:

  1. Contracts for the purchase and sale of real estate.
  2. Contracts made in the context of, or those that affect a marriage.
  3. Contracts that, by their terms, cannot be completed within a year.
  4. Contracts to guarantee the debt or obligation of another person.
  5. In Michigan, contracts for the sale of goods over $200 must usually be in writing.

If you are entering into a contract, it is important that the contract is in writing if it meets one of these categories.

Contracts Must be Offered and Accepted

The essence of any contract, whether it is oral or in writing, is a valid offer and acceptance. The offer and its acceptance must be sufficiently detailed so the court can easily determine what was being offered and what was being asked for in exchange. The court must be satisfied that there was a “meeting of the minds,” meaning there must be evidence that both contracting parties were agreeing to the same thing.

When the terms of a contract are reasonably clear and unambiguous, the fact that one party may have subjectively understood them differently does not prevent a meeting of the minds. On the other hand, when there is a genuine misunderstanding based on ambiguity in the contract, there is no meeting of the minds.  Even when there is not a formal contract, the court will occasionally enforce an obligation based on certain equitable principles, where one party may have received an unfair benefit, or the other an unfair burden.

Case Study

Assume, for example, that a homeowner and a contractor are negotiating building an addition to the homeowner’s house. No formal contract has been signed, but the homeowner knows that the contractor’s crew has already completed the foundation for the addition. The homeowner then refuses to sign the contract and refuses to pay.  Even though there is no formal contract, the court may allow the contractor to recover compensation on the basis that the homeowner would otherwise be unjustly enriched. Similarly, consider the same example, but the contractor has purchased custom materials for the job even though no work has been done. The homeowner discontinues the negotiations, even though he knew that the materials were being purchased. The homeowner has received no benefit, since construction has not begun, but the contractor is hurt because he has custom materials he cannot return. The court may well apply a legal doctrine called promissory estoppel, which contends that if two parties make a verbal promise, and one party breaks the promise knowing the other party will be harmed, this deal may be upheld in court.

Both Parties Benefit from a Contract

In order for a contract to be binding, both parties must be benefiting; this is generally referred to as consideration. A promise to do something without getting paid or getting something else in return will usually not be enforced in court. This most commonly occurs when one party attempts to renegotiate a contract strictly to their own benefit.

Assume, for example, that a homeowner hires a painter to paint his house for $1000. Part-way through the contract, the homeowner says he is only willing to pay $900. Unless the contractual obligation is also reduced, the contract is without consideration because the painter is required to perform the same task with a reduced cost.  There is an exception to this rule in employment situations. Courts have held that when an employer announces a change in pay or benefits going, if the employee stays, whether under protest or not, he is agreeing to the change. The consideration is the continuing employment.

Breach and Anticipatory Breach

A breach of contract is a failure to perform a material term of the contract. Although there may be additional consequences for an intentional and willful breach, contracts are generally not about intent; a contract is either performed or it isn’t. Inadequate completion of a contract generally falls into one of these categories:

  1. Substantial Performance – A performance that comes very close to what is called for in the contract usually entitles the party delivering a service to receive compensation for what was achieved, but also to take a reduction for any minor failure to meet the precise terms of the contract.
  2. Material Breach of Contract – A performance that is deficient and causes harm to one party in the contract. Under these circumstances, the harmed party in the contract is entitled to seek compensation to rectify the damages.
  3. Anticipatory Breach of Contract  – Sometimes a contract can be breached even before it starts if, after the contract is made, one party states they will not be going forward with the contract, or takes action which makes performance impossible. This is legally the same as an actual contract breach and is remedied the same way.

Solutions for a Breach of Contract

The usual solution for a breach of contract is monetary compensation to the non-breaching party. All damages that naturally and reasonably flow from the breach and were reasonably foreseeable are generally subject to recovery.  The non-breaching party is also required to take reasonable measures to keep the damages from being any worse than necessary.

Case Study
Take, for example, the landlord who has entered into a lease with a prospective tenant for an apartment. The tenant backs out without justification, thus breaching the lease. However, a new tenant comes along the next day and offers to rent the apartment at the same price. If that is the last vacant apartment, the landlord has an obligation to rent to the new tenant and will only be able to claim against the breaching tenant for any loss caused by a difference in rent or the fact that, perhaps, the new tenant is only willing to start the lease a week later than the original tenant. But, if the landlord already had other vacancies and could have put the new tenant into one of those, then he is not required to give the breaching tenant credit for the new lease and may sue for the entire amount.

The general rule is, if money damages will adequately compensate the non-breaching party, then the breaching party may not be forced to go through with the contract. There are, however, exceptions. Some property is considered unique, including one-of-a-kind artwork and real estate.  Therefore, the buyer of a home may require that the seller go through with the sale, rather than simply accepting money damages in the event of a breach.

If you believe someone has breached a contract with you, it is in your best interest to obtain one of the Michigan civil litigation attorneys at Seikaly, Stewart & Bennett immediately to recover any damages. Arrange your no-obligation consultation by calling 248-785-0102 or filling out our contact form.

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