If Someone Breaches a Contract, Am I Obligated to Perform?

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Most people enter into a contract with the intention of fully performing their obligations.  They walk away from the execution of the contract believing that they understand the terms, exactly what they agreed to and what they need to do.  Unfortunately, during the life of the contract the parties often find themselves confused about their obligations, the actual language of the contract and their options for forcing a breaching party to perform or to pay for the damages caused by the breach.

WAS MY CONTRACT BREACHED?

A breach of contract occurs when a party fails to perform its obligations under the contract.  The breach can be actual or anticipatory.  Actual breach is when the party refuses to perform as agreed to under the contract by the date on which it has agreed to perform.  Anticipatory breach is when the party announces ahead of time that it does not intend to perform its agreed upon obligations.

THE OTHER GUY BREACHED, DO I STILL HAVE TO PERFORM?

Even if a contract is actually breached, the non-breaching party still must perform under the contract.  If a party commits an anticipatory breach, however, the non-breaching party does not need to perform its obligations under the contract.  Once the breaching party announces that it does not intend to perform, the non-breaching party may either treat the contract as discharged and bring an action for damages immediately or it may elect to treat the contract as valid, complete its side of the bargain and then sue for payment.

CAN I MAINTAIN A LAWSUIT?

When considering whether one can maintain a claim for breach of contract, there are a number of key questions to ask regarding a potential claim:

Has Too Much Time Passed?

First, are you within the applicable statute of limitations?  In Virginia, a breach of contract claim must be brought within 5 years of the breach if the contract is in writing (see Va. Code § 8.01-246(2)) and within 3 years if the contract is not in writing (see Va. Code § 8.01-246(4)).

What Are the Terms of the Contract?

The next stop is to thoroughly review the contract itself.

• Does it have sufficient detail? (a description of the goods or services to be provided; a statement of the price; a statement of the payment; the date by which a party is to perform the obligation)
• Is the contract in writing and is it signed by the other party to the contract? (not all contracts must be in writing but some must be in writing to be enforced)
• Have you performed your obligations under the contract?
• Have all preconditions been met? (any requirements that must occur before the contract is to be performed)
• Determine what obligation(s) the breaching party has breached?

How Do I Determine My Damages?

Next, the non-breaching party must consider how it has been damaged based on the breach, by asking a number of questions including:

1. What were the expectations had the contract been fulfilled?
2. Based on those expectations, what expectation is not being met based on the breach?
3. Did the non-breaching party mitigate its damages?

The purpose of awarding damages in a contract action usually is to put the injured party into the same position it would have been in had the contract been properly performed.  While there are a number of remedies that can be awarded, the damaged party generally is seeking monetary damages or specific performance (making the breaching party perform under the terms of contract).  If a monetary award will not make the non-breaching party whole, the non-breaching party may be entitled to specific performance.

In order to recover anything more than nominal damages (a small amount of money to recognize the other party has breached), the non-breaching party must show that it has suffered actual loss.

The non-breaching party is entitled to damages which can fairly and reasonably be considered to arise naturally from the breach of contract itself, or which may reasonably be supposed to have been within the contemplation of the parties at the time they made the contract as being the probable result of the breach.

If the contract has a liquidated damages clause – an agreed upon amount that the non-breaching party would be entitled to if there is a breach – the non-breaching party will be entitled to that amount, unless it is considered to be a penalty.  In other words, the liquidated amount has to be an amount that the parties could reasonably have anticipated the contract to be worth, not a penalty for non-performance. Your attorney can help you determine if the liquidated damages clause in your contract appears to be more of a penalty clause.

Punitive damages usually are not awarded for a breach of contract. They generally are awarded in tort cases, to punish deliberate or reckless misconduct.  Additionally, damages are not awarded for mental distress or other non-pecuniary losses in a breach of contract cause of action.

SHOULD I HIRE AN ATTORNEY?

Finally, you must consider whether your damages are significant enough to warrant hiring an attorney. Whether you are sued for breaching a contract and need to respond or wish to file suit against another for breaching a contract, it is imperative that you timely respond or file.

If you are sued for breach of a contract, there is a specific date by which you must respond to the complaint.  You will have a number of options for responding to the complaint.  Your attorney will be able to help you determine which option is the best for you based on the facts of your case and the allegations in the complaint.  While your attorney may recommend filing an answer, they also might recommend filing a demurrer, a special plea or a motion to dismiss, among other options.  For example, your attorney will be able to assist you in determining whether you have a legal defense to your non-performance such as impossibility, impracticability, act of God, unconscionability, etc.

If you wish to file suit because the other party has breached your contract, you must file suit by a particular date or the applicable statute of limitations will preclude you from being able to maintain a lawsuit.  Additionally, you also must make particular allegations in the complaint in order to maintain the suit.

WHAT DO I DO NOW?

While your contract may have appeared to be straight forward at the time it was entered, performing under the contract, understanding and interpreting the terms of the contract, and ultimately filing or defending a lawsuit in reference to the contract can become much more cumbersome and difficult to handle.  An attorney can help you navigate the legal procedures involved in filing or defending a breach of contract lawsuit and can assist you in the substance that is required in the documents that you need to file and serve.