Contract Litigation

Breach of Contract

In order to prove a breach of contract – that the other party did not do what is required by the contract – you must show:

• A contract exists;
• You did everything you were supposed to do under the contract, or there is a legally recognized reason that excuses you from not doing everything you were supposed to do;
• The other party did not do everything that party was supposed to do under the contract;
• You suffered damages, or did not get what you were supposed to get, as a result of the breach of contract. For example, you lost money because the other party did not do what was required by the contract.

To prove the existence of a contract, you must first be able to show that you and the other party formed a legally binding contract – see the article on Contract Formation. Assuming you can show there was a valid contract, you must prove what the other party did wrong or did not do under the contract. To do this, you must also show that what the other party did wrong, or did not do, was a “material” term ― that is, not a trivial or unimportant part of the contract. This means that what the other party did wrong, or did not do, was so important that you would not have entered into the contract if you had known about it ahead of time.

There are several different ways to calculate damages in a breach of contract action. Calculating damages means you must show how much money you lost by the other party’s failure to do what was required under the contract. Usually, the amount of your damages is what you would have gotten if everyone had done what they were supposed to do under the contract.

There are two types of damages ― “direct” damages and “consequential” damages. Direct damages are the direct result of the other party not doing what was required under the contract. For example, you are a restaurant owner and pay a contractor, in advance, $15,000 to build a fence and other improvements to a back patio, which are necessary for you to be able to serve customers there. But the contractor never does the work. Your direct damages are $15,000.

In contrast, consequential damages are not always caused by the other party failing to do what was required under the contract, but were caused by the other party’s failure in your particular case. In order to get consequential damages, however, you must be able to show that you and the other party were both aware, when you entered into the contract, that the specific type of damages you are seeking to recover might occur if one of the parties did not do what they were supposed to do so.

In the example above, you might be able to show that both you and the contractor were aware, when you entered into the contract, that, if the contractor never did the work on the patio, you would not be able to serve as many customers and therefore you would lose profits as “consequence” of the contractor’s failing to do the work. However, you would also need to prove that you were in fact unable to serve as many customers as you would have done if the contractor had done the work, and how much money you actually lost as a result.

Another way of saying this is that you cannot recover damages that are “speculative,” indefinite, or imaginary. Your damages must be reasonably certain and directly traceable to the other party’s breach of the contract. For example, if you paid someone to build a racing car for you, and they never built it, you would be able to claim “direct” damages in the amount of money you paid the person who did not do what they were supposed to do. However, if, when you entered into the contract, you had never raced a car before and never even entered a car race, you would probably be unable to get as “consequential” damages money that you said you would have gotten for winning a prize for a car race.

Legal Editor: Robert A. Sternbach, November 2014