If you own or operate a business, you know that disputes are inevitable. Breach of contract is one of the most common disputes businesses face. But, does every deviation from a contract rise to the level of a breach? In today’s post, we take a closer look.
4 Elements to establish a breach
In Texas, a breach of contract claim has four elements:
- A valid contract existed
- The plaintiff substantially performed their duties under said contract
- The defendant failed to perform their duties
- The plaintiff experienced damages as a result on the defendant’s nonperformance
Let’s take these one at a time.
The first two elements are relatively simple. First, to breach a contract, one must have existed in the first place. And second, you have to have substantially performed all of your duties under the contract before you can sue someone else for failing to live up to their end of the bargain.
The third element requires a deeper investigation. The first step is to determine the defendant’s duties under the contract. What did the contract require? Sometimes contract terms are not clear and are open to interpretation. Establishing exactly what was required under the contract can become the subject of much dispute.
If the terms of the contract are ambiguous, the court will examine a variety of factors to clarify the terms, such as evidence surrounding each party’s intent at the time the contract was formed, and the customs and practices within the industry.
Once the contract terms are known, the second step is to prove that a material breach occurred. Not every deviation from the contract’s terms is considered a material breach. A minor breach is a deviation that does not subtract value from the agreement. A minor breach is generally not actionable. A material, or fundamental, breach is one that deprives the non-breaching party of substantial benefits.
Finally, the plaintiff must show that the material breach caused actual damage. If one party failed to perform their end of the bargain but this breach did not cause any actual damage, then there is no legal claim.
Damages include more than lost money. They may also include lost time, and an increase in expenses to the non-breaching party.
When breach of contract claims arise, they can be devastating for businesses. If you are involved in a potential breach of contract claim, make sure your attorney has the skill and experience necessary to protect your business’s interests.