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Legal Remedies For Breach Of Contract In Business

When one business fails to honor its contractual obligations to another company, both parties may suffer. Given this reality, in most cases a firm that finds itself unable to honor one or more of the terms of its contract with another business will make an effort to reach an agreement with the other side of the contract regarding a feasible alternative or way to make amends. The company that has been inconvenienced by the failure is often willing to negotiate in order to find a satisfactory solution that will keep both parties out of court. In many instances, these efforts are successful and lead to fruitful, mutually rewarding long-term business relationships. Sometimes, however, the two sides may reach an impasse. In those cases, the wronged party may need to pursue legal remedy through the civil court system by filing a suit for breach of contract. The remedies sought, and available, in a breach of contract suit can vary widely, depending on the terms of the contract, the type of breach, and other circumstances pertinent to the case. Discuss your particular situation and the legal remedies that may apply in your situation by scheduling a consultation with a New York business law attorney at Schwab & Gasparini. Reach us in Albany at (518) 591-4664, in Syracuse at (315) 422-1333, or in Hudson Valley and White Plains by calling (914) 304-4353 today.

What Is Breach of Contract in a Business?

In the most basic sense, a breach of contract is any failure by either party to a contract to fulfill its obligations, specified in the contract, with respect to the other party to that same contract. Generally speaking, however, a company’s failure to meet its obligations due to a simple accident or error is not usually considered a matter for the courts as long as there is a reasonable way for the company to rectify the situation in a manner acceptable to the other party.

To be “reasonable,” in this context, the solution needs to be:

• Something the party that has failed to fulfill its side of the contract is able to do and willing to do
• Something the party wronged by the lapse agrees will make satisfactory amends for the inconvenience

Errors and accidents happen every day, and some of them do result in significant failures on the part of one business to meet its contractual obligations to another company. In the vast majority of cases, however, the parties to a contract are able to work together to come up with a solution that meets both of the criteria given above.

How Common Is Breach of Contract in Business?

Given how common the factors that can lead a business to lapse in the fulfillment of its contractual obligations are, lawsuits seeking legal remedies for breach of contract through the courts are relatively rare. That is to say, although breach of contract lawsuits are numerous and occur frequently, they nonetheless represent only a small fraction not only of all business transactions, but even of all business contracts in which one party falls short of what it has pledged to do.

A major reason for this relative infrequency lies in the jurisprudence behind most contract law. As Cornell Law School explains, when civil courts in the United States take up breach of contract cases, they orient their findings and eventual decisions toward restoring the party wronged by the breach as nearly as possible to the economic condition they would likely have been in if the breach had never occurred. The legal remedies available through the courts will for the most part be designed to achieve this goal. Because this essential logic, of rectification through restoration, is often a principle that businesses can apply outside the courts – either independently, or with the assistance of a neutral third party – in many cases both parties to a breached contract will seek to avoid the time and expense they can normally expect to be involved in formal court proceedings, and make a good faith effort to work together in constructing a path to the same basic goal.

Types of Breach of Contract

Breaches of contract are classified in two distinct ways, which may overlap. The first classification is configured by whether the breach of contract has already occurred, or on the other hand is expected to occur (and may even be announced in advance, for instance by a business sending a client notice that an unforeseen accident will cause a delay in fulfillment of an expected shipment or project completion). The second classification relates to the relative importance of the violated contract term with respect to the contract agreement as a whole.

Material vs. Minor Violations

A breach of contract is considered to be a material violation if the breach means that the purpose of the contract is rendered moot by the lapse. A breach of contract that violates one or more terms of the agreement but does not defeat the purpose of the contract or make the remaining terms impossible to fulfill is known as a minor violation.

As a general rule, when the party wronged by a breach of contract seeks legal remedy through the formal judicial process, they can expect that the court will not void the contract for a minor violation even if the judge in the case orders the breaching party to pay substantial damages. The guidance outlined in New York’s Uniform Vendor and Purchaser Risk Act broadly informs the treatment of “immaterial” violations by the state’s civil courts except where otherwise specified by laws pertaining to the specific industry or type of contractual relationship. Material violations, on the other hand, are more likely – although not guaranteed – to result in voided contracts across many different industries and contract types. A New York business law attorney with Schwab & Gasparini may be able to help you determine whether your breach of contract matter likely involves a material vs. minor violation of the contract terms.

Anticipatory Repudiation vs. Actual Breach

Whether the failure to meet contractual obligations constitutes a material violation in a specific instance or not, it may be considered an actual breach only once the failure has already taken place – for instance, because a payment has not been made by the agreed-upon date, or because purchased goods have not been delivered on time or have failed to meet contractually specified standards for quality or quantity. The range of possible violations will depend on the specific terms of the contract, but the legal options available for seeking remedy in a breach of contract scenario will depend to some extent on whether the violation has already occurred (resulting in damages for one party) or on the other hand has been announced as an expectation by the side that has not yet violated the terms of the contract, but expect to do so.

NY Cons. § 2-610 (2024) identifies this announcement of an expected breach of contract as an “anticipatory repudiation.” Even individuals with considerable business experience sometimes find the idea of either party to a contract making an advance declaration of its own failure surprising at first glance, but in fact anticipatory repudiation is in many cases a business courtesy. When a company recognizes that, due to factors beyond its control, the business will not be able to meet one or more of its obligations under an active contract, notifying the other party to the contract can be an important step toward minimizing the potential harms caused by the breach and taking proactive measures to make amends.

Court-Ordered Remedies for Breach of Contract

Broadly speaking, most of the remedies available in breach of contract cases consist of court-ordered payments of “damages.” In this way breach of contract lawsuits have some similarities with judgments under civil torts law; however, the punitive damages sometimes awarded in personal injury and similar torts matters are not typically available for breach of contract, and the categorization of damages in general differs between contract vs. civil torts cases. Two types of damages commonly awarded in breach of contract judgments are:

• Compensatory damages
• Consequential damages

Both types of damages aim to make up for the losses suffered by the non-breaching party, but they differ in how the losses are calculated and the immediacy of their relationship to the contract violation. 

Compensatory Damages

Compensatory damages are intended to cover the costs of the actual losses a business has sustained as a direct result of the breach. Generally speaking, compensatory damages are (relatively speaking) simple to compute, although the breaching party may attempt to argue that the non-breaching party’s estimates are exaggerated. If Party A, a retailer, is unable to maintain its regular monthly sales volume due to the failure of Party B, a wholesaler, to deliver goods purchased for resale during a holiday event in time for Party A to actually display goods for purchase at the event, Party A may offer as its estimate the total projected profits if all items sold, while Party B may argue that 100% resale is an unrealistic projection based on average resale rates under similar circumstances. Often a judge considering an award of compensatory damages will ask both sides to provide detailed explanations of their computations in order to ensure that the final determination is fair.

Consequential Damages

Consequential damages are also sometimes known as “special” damages. These payments are intended to cover losses or expenses indirectly caused by the breach of contract. As a general rule, consequential damages are aimed at addressing losses that the non-breaching party would not have sustained if the breach had not occurred, even though these losses were not directly caused by the breach. The party seeking an award of consequential damages in court will often need to make a compelling case that the losses sustained were not only indirectly attributable to the breach, but foreseeable outcomes of the specific violation. Awards of consequential damages may be more difficult to achieve than compensatory damages, but they can sometimes play an important role in rectifying the harms done to a business in a breach of contract scenario.

Speak With a New York Business Law Attorney Today 

Breach of contract can have a serious impact on any business. Often, the parties to a contract are able to negotiate in good faith outside the court system and come to mutually satisfactory arrangements for restoring balance when one side is unable to keep its obligations in due course. At other times, however, these negotiations may not prove fruitful, and the party wronged by the breach may need to seek legal remedy by filing a suit for breach of contract. The New York State business law attorneys with Schwab & Gasparini have experience handling many different types of breach of contract cases, and may be able to provide you with an overview of your legal options during a tailored consultation. To learn more, contact any of our offices throughout the state. Reach us in Albany at (518) 591-4664, in Syracuse at (315) 422-1333, or in Hudson Valley and White Plains when you call (914) 304-4353 today.

Mon Dec 9 2024, 12:00am