A contract is a just a fancy way of saying agreement. A contract is an agreement to do something or sell something. A person can sue for breach of contract when another person (or company) breaches, that is breaks, the contract. Obviously, some breaches of contract aren’t worth suing on, such as someone missing a business luncheon. On the other hand, some breaches are so serious that millions of dollars are at stake, such as a buyer’s refusal to follow through with the purchase of a $10,000,000 commercial building that if not sold now, will have to be sold for $3,000,000 less.
A contract can be either oral or written. For example, in California, a rental agreement for an apartment does not have to be in writing if it’s for a year or less. An employment contract also does not have to be in writing, as long as there is no specified length of employment. However, a contract for the sale of a house must be in writing.
Some breaches of contract are easy to present to a judge or jury, such as when there are minimal calculations to prove the amount of damages caused by the breach. For example, a sterling silver antique seller agrees to sell some flatware to a buyer for $1,000, but before delivering the flatware, the seller realizes that the flatware is extremely rare and instead of being worth a $1,000 is worth $60,000. The seller then backs out of the deal. The buyer can sue for breach of contract, and to prove damages, the buyer can simply present the terms of the agreement and the actual market price of the rare replacement flatware, at $60,000, thus showing damages of $59,000. One expert, on antique flatware, should suffice at the trial.
On the other hand, let’s say a generic drug manufacturer has an exclusive five year written contract with a commission salesperson, which agreement covers the seven western United States, and specifies 5% commissions of gross sales of the generic drug of the manufacturer. After a year on the job, the salesperson does so well that the manufacturer has to pay him commissions of $3,000,000, which is much more than it wants to pay for the remainder of the contract. So the manufacturer terminates the contract and hires another salesman at a 2% commission structure. At trial,the original salesman must present sales projections of the generic drug for years two through five of the contract at a sales volume/projection as if the original salesman were still on the job, even though now, it’s a different salesman on the job, who is not nearly as good and therefore has a much lower sales volume. Several experts will be needed at trial to prove the damages, including an economist and a generic drug marketing expert.
In a breach of contract case, the plaintiff is usually entitled to recover all resulting damages caused by the breach, called consequential damages. In a rare instance, punitive damages–which are penalty damages—are available to the plaintiff, such as when in bad faith (without good reason), an insurance company breaches its obligations under the insurance policy. It is actually very common for insurance companies to fail to live up to their side of the bargain under an insurance policy–which is one form of written contract– such as by failing to provide to the insured all of the benefits he or she is entitled to if certain conditions are met.
Also, it is quite common that fraud may be involved in a breach of contract case, such as one of the parties to the contract defrauding the other party into entering into the contract. For example, a seller of a business tells a prospective buyer how financially successful his business is, even providing financial statements showing the success. After the close of the sale, the buyer learns that the financial statements were falsified in order to paint a rosier picture of the business than was true. The buyer can sue for both fraud and breach of contract, and at trial choosewhich of the two causes of action he wants the jury (or judge) to decide.
In California, as in most states, a party suing for breach of contract can recover attorneys fees he incurs during the lawsuit only if the contract specifically provides for attorneys fees. That means that in any breach of contract claim based on oral contract, the plaintiff cannot recoup his attorney’s fees. There are certain exceptions to this general rule, usually when a statute allows for attorney’s fees even though not specified in a written contract, in which case, the statute must be referenced as another basis of liability against the defendant, besides breach of contract.
Finally, there are deadlines for filing in court a breach of contract claim. In California, there is a two year statute of limitations, from the breach of an oral contract, to file a case for breach of contract, and a four year statute of limitations, from breach of a written contract, to file a case for breach. So for example, if a written contract was entered into in 2006, but the breach does not occur until May 20, 2013, the case must be filed by May 20, 2017.
James A. Vickman, Esq. for LawyerandClient.com, the Resource Desk of Vickman & Associates. firstname.lastname@example.org, 310-553-0567
Vickman & Associates is a law firm located in Beverly Hills, California, representing individuals and companies in litigation, trials and transactions.