Contracts are at the heart of business and commercial litigation. It is no wonder that they are an area of significant legal concern. A breach of contract can lead to complicated questions of litigation. Many breaches of contract fall into a legal gray area.
Under New York law, there are three main elements to a breach of contract claim. These include:
- There must be a binding contract between two or more parties.
What is a contract? A contract is a legally binding agreement between two or more persons or entities in which there is a promise to perform in return for a valuable benefit. A contract requires an offer, an acceptance, consideration, and mutual assent. Any acceptance of a contract must comply with the conditions and terms stated within the offer.
In New York, both parties have to have full understanding of exactly what they are agreeing to. The terms must be stated clearly and unambiguously. Ambiguous language is a common cause of breach of contract claims.
- One or more of the parties must breach the contract.
When one part violates the contract and fails to uphold their end of it they may become liable for compensation, but the breach must be substantial and material. A substantial and material breach is one that must defeat the purpose of the contract.
A company that does not complete a job in accordance with the standards outlined in the contract may be in violation of the contract.
Failing to complete a project on time may be considered a material breach if a time line or reference to time is outlined in the contract.
There are also issues of breach of contract when the one party's performance is conditional on the completion of the other party's performance. If the defendant party's performance does not take place, then despite the plaintiff's inability to perform their part of the contract, they can sue the defendant for breach of contract because they're performance hinged on the defendant's.
- Once the contract is breached there must be damages that result.
With a success, the law allows the injured party to recover direct damages and consequential damages. The law aims to put the injured party in the same position as if the contract had not been breached.
Direct damages recover losses due to the direct breach of contract. If a seller provides damaged goods to a buyer, then the buyer may seek to recover the losses in the amount equal to the difference in value of the imperfect goods and expected perfect goods.
In New York, injured parties can also recover consequential damages, also known as indirect damages. These are damages that are reasonable and foreseeable, such as lost profit.