Breach of Contract (Overview)
Updated: Sep 6, 2020
Contracts are the lifeblood of modern business, and understanding when a contract exists, what obligations each party has under the contract, and how the contract can be enforced is an essential part of understanding and managing business risk.
When does a contract exist? The standard answer is that a contract is formed by an offer, acceptance, and consideration. According to the Colorado Civil Jury Instructions (which provide a good general statement for nation-wide common law of contracts), Instruction 30:1 states "A contract is an agreement between two or more persons or entities. A contract consists of an offer and an acceptance of that offer, and must be supported by consideration. If any one of these three elements is missing, there is no contract." Consideration can be an exchange of promises (e.g., "I'll do X if you do Y"), one of which is commonly to pay money (e.g., "I'll pay you $500 for 25 widgets"). Once a contract has been formed, if one side fails to perform its obligations under the contract, the other party can enforce the contract by suing for breach of contract.
What are the elements of a claim for breach of contract? The elements of breach of contract are:
(1) Defendant entered into a contract with the Plaintiff;
(2) Defendant failed to perform some obligation to Plaintiff under the contract;
(3) The Plaintiff substantially performed its obligations under the contract, or is somehow excused from performance.
CJI-Civ. 30:10. If all of these statements are proven by the Plaintiff, and the Defendant cannot prove any valid affirmative defense, then the Plaintiff will prevail on its claim for breach of contract and will be awarded the damages that it can prove resulted from the breach. While contracts can (and often do) specify certain measures of damages, liquidated damages (though not "penalties"), or provide that the breaching party must pay the non-breaching party's attorney fees, absent specific language in the contract the general measure of damages is "expectation damages." That is, "the amount required to compensate the plaintiff for losses that are the natural and probable consequence of the defendant's breach of the contract." CJI-Civ. 30:38.
What is the implied covenant of good faith and fair dealing? In most states (including Colorado), every contract automatically contains an implied covenant of good faith and fair dealing that cannot be written out of the contract (and any attempt to do so is void). CJI-Civ. 30:16. This implied covenant "requires the parties to act in good faith and to deal fairly with each other in performing the express terms of the contract." Id. Put very simply, this amounts to a safeguard against one party getting too clever for their own good and trying to find an unfair or bad faith means to defeat the reasonable expectations the other party had when it entered into the contract.
This is only a short and simple introduction to contract law - there are literally thousands of published cases (and 56 separate official jury instructions addressing contracts in Colorado alone), all of which note various exceptions, create additional rules, and offer guidance for interpreting and enforcing contracts. For its superficial simplicity, contracts can be an extremely complex area of the law. Vail Law not only litigates breach of contract cases, but regularly assists individuals and businesses in drafting and reviewing contracts, as well as evaluating and managing risks and ensuring compliance with obligations under existing contracts. Contact us today to discuss your case, or view the rest of our Litigation Checklist.