A breach of contract is a common business dispute that can cause your company to suffer significant economic harm. It can also have a devastating impact on your company’s reputation and future. Unfortunately, it often happens during the course of doing business that a party fails to uphold their contractual obligations — either intentionally, accidentally, or due to circumstances beyond their control. In such cases, the non-breaching party may be able to take legal action and recover their monetary damages.
To recognize a breach of contract, it is imperative to first understand when and how a contract is formed. Under Illinois law, a contract can be written or verbal. Regardless of whether the agreement was entered into orally or in writing, three elements must be met to create an enforceable contract. These include the following:
(1) An offer — An offer is made when one party promises to perform or give something in exchange for another party’s performance.
(2) Acceptance of the offer — An offer is accepted when the offeree objectively assents to the terms proposed by the offeror and communicates an intent to be bound.
(3) Consideration — Consideration is the benefit each party receives as a result of entering into the deal.
If the above criteria are satisfied, the law presumes that a valid contract has been formed. Common types of contracts in business can include employment and partnership agreements, non-compete agreements, leases, vendor contracts, utilities contracts, indemnity agreements, and equipment leases. However, a contract can only be legally formed when the bargained-for-exchange is lawful — illegal contracts will not be upheld by a court.
A breach of contract occurs when one party breaks its promise or refuses to comply with the terms to which they agreed. However, a contract need not be breached in its entirety for the non-breaching party to commence a lawsuit for the damages they suffered. There are many different ways a contract can be breached — a breach of contract can be material, minor, anticipatory, or actual.
A material breach of contract occurs when a party fails to carry out the fundamental terms of the contract. These types of breaches can arise when the non-breaching party receives something different from what was agreed upon. In contrast, a partial breach only affects a minor portion of the contract, rather than its main purpose. An example of a partial breach would be meeting the demands of the contract but completing the obligations a day late.
A breach of contract can fall into one of two categories. An “actual breach,” means that a party refused to fully perform the terms set forth in the contract. An “anticipatory” breach occurs when a party conveys through their words or actions in advance that they will not be able to meet their contractual obligations. In either case, the non-breaching party may be entitled to a legal remedy.
Importantly, before you can bring a lawsuit in court, you must, in some situations, provide the party who failed to perform with notice and an opportunity to cure the breach. Typically, a contract will include a provision specifying a cure period and the conditions. Additionally, in the event the non-breaching party learns that the other party will not be performing, they are required to mitigate their damages to prevent further loss.
Contracts can be complex, and a party may breach a contract without realizing it. Or, they might have a valid reason for the breach. There are a number of defenses that can be asserted to excuse a party’s non-performance. Each defense is fact-specific, depending upon the circumstances surrounding the breach.
Some common defenses to a breach of contract include the following:
If a defense is unsuccessful and the non-breaching party prevails in a lawsuit, they may be entitled to recover their monetary damages. Other remedies can include rescission, specific performance, injunctive relief, restitution, and liquidated damages. But there may also be some instances in which the breaching party might also be able to recover damages, such as when certain legal defenses exist — or if they substantially performed under the contract.
If you’re facing a breach of contract matter, it’s vital to have a knowledgeable business attorney by your side who can protect your legal rights and advocate on your behalf. Located in Rolling Meadows, Litico Law Group is committed to assisting entrepreneurs and small business owners in Illinois with a wide variety of legal issues, including contract disputes. We welcome you to contact us at (847) 307-5942 to schedule a consultation to learn how we can help.