What Constitutes a Breach of Contract?
Any non-performance of a contractual duty which has become due constitutes a breach. An anticipatory repudiation of obligations also serves to breach a contract.
In contracts for the sale of goods, in addition to repudiation, a seller breaches the contract by offering a tender or delivery of non-conforming goods, and the buyer breaches by wrongfully rejecting goods, wrongfully revoking acceptance of goods, or failing to make a payment when due.
There are three main types of breach of contract and courts treat each type of breach of contract differently:
- Material breach;
- Non-material breach; an
- Anticipatory breach a/k/a Anticipatory repudiation.
Material Breach
A material breach of contract happens when one side fails to perform their duties as it relates to a major part of the contract. The purpose of the contract is defeated by the failure of one side to fulfill their duties.
“To constitute a vital or material breach, a party’s nonperformance must ‘go to the essence of the contract.’” Covelli Family, L.P. v. ABG5, L.L.C., 977 So. 2d 749, 752 (Fla. 4th DCA 2008). “A party’s ‘failure to perform some minor part of his contractual duty cannot be classified as a material or vital breach.’” Id.
If one side has committed a material breach of the contract, the other side is not legally obligated to fulfill their duties under the contract. A material breach of contract entitles the non-breaching side to sue for damages incurred because of the breach.
Factors which are relevant to a determination of whether a breach is material are:
- the extent to which the aggrieved party will be deprived of the benefit he reasonably expected;
- the extent to which the aggrieved party can be adequately compensated for the benefit of which he will be deprived;
- the extent to which the breaching party will suffer forfeiture;
- the likelihood that the breaching party will cure his failure, taking into account all the circumstances including any reasonable assurances; and
- the extent to which the breaching party has acted according to standards of good faith and fair dealing.
Restatement (Second) of Contracts § 241 (1981) (“Restatement”).
In some circumstances a material breach is clear. If one side fails to deliver the promised goods in a sales contract, this is a material breach and the other side is not expected to make a payment for the never-delivered goods.
However, in many cases it is unclear whether or not a particular action is truly a material breach. It is possible that the purpose of the contract could still be fulfilled.
Non-Material Breach
A non-material breach of contract happens when one side fails to meet their contractual obligations as it relates to a minor part of the agreement. A non-material breach does not go to the heart of the contract. See Restatement § 241, cmt. b (“[A]n important circumstance in determining whether a failure is material is the extent to which the injured party will be deprived of the benefit which he reasonably expected from the exchange.”).
If there is a non-material breach, the other side will still have the legal right to pursue compensation for any actual harm caused by the breach, but the non-breaching side is not excused from performing their obligations under the contract. In other words, while a material breach stops the contract, with a non-material breach, the contract continues on.
Anticipatory Breach
Anticipatory breach of contract, also known as anticipatory repudiation, happens when one of the parties to the contract declares in words or actions that they do not intend to meet their obligations and duties under the contract.
A party repudiates a contractual duty by:
- making a statement indicating that he will breach the contract;
- engaging in a voluntary affirmative act that renders him unable to perform the duty; or
- failing to provide an assurance of due performance in response to such a request by the other party when there exists reasonable grounds to believe that the obligor will not perform.
Restatement §§ 250, 251.
When there has been an anticipatory breach that deals with a major part of the contract, it excuses the non-breaching side from performance and allows them to begin legal action immediately, instead of having to wait for the term of the contract to be fulfilled.
However, if the anticipatory breach only deals with non-material part of the contract, the non-breaching side must still honor their contractual obligations. They will be entitled to sue for damages resulting from the non-material breach, if any. Dealing with anticipatory breach can be tricky because parties can retract their anticipatory breach if the other side has not made any changes in reliance on the prior repudiation.
Consequences of a Breach of Contract
The primary consequence for a breach of contract is that the side that commits the breach becomes liable for the damages caused by their failure to meet their obligations. Under contract law, the breaching party will be required to make the other part whole. The liability will be different depending on if the breach was a material breach or a non-material breach. The court will also look to the actions of the injured party when determining the appropriate amount of damages.
Legal Remedies for Breach of Contract
A remedy is the action a court orders the party that breached the contract to take in order to make the other side whole. Florida has recognized three distinct remedies for breach of contract—damages, restitution, and specific performance. Ocean Comm., Inc. v. Bubeck, 956 So. 2d 1222, 1225 (Fla. 4th DCA 2007). Damages are considered a legal remedy, while restitution and specific performance are considered equitable remedies. Damages can be broken down in expectation or general damages and consequential or special damages.
Damages a/k/a Expectation or General Damages
In most contract disputes the most efficient way to make the injured party whole is to award monetary damages. “Damages recoverable by a party injured by a breach of contract are those that naturally flow from the breach and can reasonably be said to have been contemplated by the parties at the time the contract was entered into.” Mnemonics, Inc. v. Max Davis Assocs., Inc., 808 So. 2d 1278, 1280 (Fla. 5th DCA 2002). A party seeking general damages need not offer further proof that the damages were foreseeable.
Expectation damages compensate the injured party for the benefit he would have received had the contract not been breached, minus any amount he would have spent in performance of the contract. Ocean Comm., Inc., 956 So. 2d at 1225. Such damages must be proven with certainty, and may be measured by the contract price, loss in value, or lost profits. They include all of the direct costs incurred by the non-breaching party as a result of the breach of contract.
Consequential Damages a/k/a Special Damages
Consequential, or special, damages arise from the special facts and circumstances of the case and are not deemed to be within the contemplation of the breaching party unless he was made aware of such specific facts and circumstances.
Special damages include payment for all things that were a direct result of the breach of contract, but came about because of special or unusual circumstances. Special damages are much less frequently awarded. A party seeking consequential damages must demonstrate that the damages were foreseeable at the time the contract was formed.
“Special damages are those that do not necessarily result from the wrong or breach of contract complained of, or which the law does not imply as a result of that injury, even though they might naturally and proximately result from the injury. More succinctly, special damages are damages that do not follow by implication of law merely upon proof of the breach.” Land Title of Central Fla., LLC v. Jimenez, 946 So. 2d 90, 93 (Fla. 5th DCA 2006).
For example, a homeowner has to have their house painted by a specific date or else be fined by the neighborhood homeowner’s association. They enter into a contract with a painter and they tell the painter they need the house painted by a specific date or else they have to pay the fine. If the painter breaches the contract by failing to paint by the correct date, they will be liable for the special damages of the fine by the homeowner’s association.
Stipulated Damages a/k/a Liquidated Damages
At the time the contract is formed, the parties may agree to a fixed sum of money or a set formula for setting damages in the event of a breach. Restatement § 356. Stipulated damages will be enforced if they reflect an honest effort to anticipate the harm caused by a breach. Stipulated damages will be deemed invalid if they represent an attempt to punish the breaching party, such as in the case of unreasonably large damages.
Equitable Remedies for Breach of Contract
As mentioned above, ordinarily the non-breaching party to a contract seeks money damages. In some cases monetary damages cannot make the injured party whole. When legal damages are not sufficient in a breach of contract action, the court can turn to equitable remedies. There are several potential equitable remedies available in the context of contracts but this article will discuss the three most frequently seen remedies, specific performance, restitution, and rescission of the contract.
Specific Performance
Specific performance is a type of equitable remedy where the court orders the side that breached the contract to perform a specific duty under the contract. Specific performance is not available if expectation damages are adequate to put the aggrieved party in as good a position as he would have been had the contract been fully performed. See Castigliano v. O’Connor, 911 So. 2d 145, 148 (Fla. 3d DCA 2005) (“Specific performance shall only be granted when 1) the plaintiff is clearly entitled to it, 2) there is no adequate remedy at law, and 3) the judge believes that justice requires it.”).
Expectation damages are deemed to be an inadequate remedy:
- where the subject matter is unique;
- in real property transactions; and
- in goods contracts, “where goods are unique or in other proper circumstances,” e.g., where the goods are in short supply.
Specific performance will only be ordered when the subject matter of the contract is unique. Land disputes are the most frequent area where specific performance may be ordered.
However, specific performance may also be appropriate when the dispute is over a family heirloom or a piece of art. Sometimes antiques are also said to be unique enough for specific performance to be a fair remedy.
Specific performance cannot be ordered in the case of personal services. A court will not order a painter to paint a house or a writer to complete a book. Doing so would violate the Constitutional prohibition of involuntary servitude.
Restitution
Restitution compensates a party for the benefit conferred on the other party as a result of partial performance or reliance, and is aimed at preventing unjust enrichment. The distinction between a damages remedy and a remedy of restitution has been explained as:
“The purpose of damages is to put the injured party in as good a position as he would have occupied had the contract been fully performed. In this context the injured party is considered to be ‘affirming’ the contract. The purpose of restitution, however, is to require the wrongdoer to restore that which he has received and thus tend to put the injured party in as good a position as he occupied before the contract was made; in this context the injured party may be said to have considered the contract as ‘terminated’ or ‘ended.’” Ocean Comm., Inc. v. Bubeck, 956 So. 2d 1222, 1225 (Fla. 4th DCA 2007).
Restitution may be available in cases of breach, to either party:
- where a contract is unenforceable (e.g., due to lack of consideration or writing);
- where a contract is voidable;
- where a duty is excused or discharged due to impracticability, frustration of purpose, non-occurrence of a condition, or disclaimer by a beneficiary.
Restatement §§ 375, 376, 377.
Restitution damages may be measured by:
- the reasonable value of the benefit received in terms of what it would have cost to obtain such benefit from another source; or
- the extent to which the value of the party’s property has been increased or his other interests advanced.
Restatement § 371.
Rescission
In limited circumstances, a party can seek rescission or cancellation of the contract. Rescission is an equitable remedy that is only available if there is no adequate remedy at law. See Cent. Fla. Antenna Serv., Inc. v. Crabtree, 503 So. 2d 1351, 1353 (Fla. 5th DCA 1987) (“Rescission should not be granted if damages for breach of contract or warranty are available.”).
In granting rescission, the court attempts to restore the parties to the status quo. Royal v. Parado, 462 So. 2d 849, 856 (Fla. 1st DCA 1985). “Where restoration to the status quo is impossible, however, a court may still grant rescission, provided the equities between the parties can be balanced.” Braman Dodge, Inc. v. Smith, 515 So. 2d 1053, 1054 (Fla. 3d DCA 1987). A party’s right to rescind is subject to waiver if he or she retains the benefits of a contract after discovering the grounds for rescission. Mazzoni Farms, Inc. v. E.I. DuPont De Nemours and Co., 761 So. 2d 306, 313 (Fla. 2000).
Rescission may be available where there was fraud, false representations, mutual mistake, or impossibility of performance. For example, rescission of a contract is an adequate remedy where the parties to the contract labor under a mutual mistake which is material to the transaction. Braman Dodge, Inc., 515 So. 2d at 1054.
Rescission is also available as a remedy for a fraudulent inducement or fraudulent non-disclosure under the narrow circumstances where a legal claim cannot be made under any other cause of action. For example, rescission is proper where there has been intentional concealment of any fact material to the transaction, not just fact materially affecting the value of real property as is required for a legal cause of action involving the sale of real estate. Billian v. Mobil Corp., 710 So. 2d 984, 989 (Fla. 4th DCA 1998).
Mitigation of Damages
There is an important limitation on damages in cases of breach of contract. The non-breaching party to a contract cannot simply sit by and allow their damages to increase. A party aggrieved by a breach must use reasonable efforts to mitigate their damages. Restatement § 350. The non-breaching party may be prevented from recovering damages that could have been avoided by reasonable efforts. Id.
“The doctrine of avoidable consequences, which is also somewhat inaccurately identified as the ‘duty to mitigate’ damages, commonly applies in contract and tort actions.” Sys. Components Corp. v. Fla. Dep’t of Transp., 14 So. 3d 967, 982 (Fla. 2009). “There is no actual ‘duty to mitigate,’ because the injured party is not compelled to undertake any ameliorative efforts.” Id. “The doctrine simply ‘prevents a party from recovering those damages inflicted by a wrongdoer that the injured party could have reasonably avoided.’” Id. “The doctrine does not permit damage reduction based on what “could have been avoided” through Herculean efforts.” Id. “Rather, the injured party is only accountable for those hypothetical ameliorative actions that could have been accomplished through “ordinary and reasonable care,” without requiring undue effort or expense.” Id.