Written contracts are important for both individuals and businesses. This is true whether an individual is having his/her home remodeled, a small business is purchasing equipment for its operation, or a multi-million dollar business is taking over another business. Effective contracts establish the rules of a transaction, relationship, or operation, and, by doing so, dramatically lessen the chance of confusion and disagreements – and potentially lawsuits – down the road.
While a breach of a contract by another party is always frustrating, it can be devastating if the nature or subject of the transaction is significant. In fact, regardless of whether the breach was accidental or intentional, in certain circumstances, a breach of contract can put an individual’s or business’s financial viability at risk. If an individual or business believes that another party has breached a contract, the question then becomes: Do they have a case?
Here are three elements of a breach of contract case.
When an individual or business believes that another party has breached a contract, the first step is to review the contract (including any amendments, addendums, etc.) to confirm each party’s rights and obligations. Then, the individual or business should carefully review what happened, including reviewing all pertinent documents and communications (e.g. letters and e-mails) and what each party did (or did not do).
Once this information is known, a party can evaluate whether the other party may be liable for breach of contract. In South Dakota, three elements must be proven to prevail on a breach of contract claim.
- There was an enforceable promise: In other words, was there a valid contract? This is typically demonstrated using the written contract that was entered into. It should be kept in mind, however, that a valid contract requires the presence of four elements: (a) parties that were capable of contracting; (b) each party consented to the contract; (c) the object of the contract was lawful; and (d) there was sufficient consideration.
- The other party breached his/her/its promise (i.e., breached the contract): An effective contract should have clearly outlined the rights and obligations of each party. Therefore, to prove that the other party breached the contract, one must show (a) the other party’s obligation(s) as set forth in the contract, and (b) how the other party failed to fulfill that obligation(s). For example, if a contract stated that a manufacturer would provide 100 fully functional items of equipment by a certain date, and the manufacturer provided only 80 items, the manufacturer breached its promise.
- Damages resulted from the breach: It is not enough to prove that the other party breached some aspect of the contract. In order to prevail on a breach of contract claim, one must also prove that he/she/it suffered damages as a result of the breach. For example, if a contractor breached a contract to remodel a home, the homeowner’s damages might be the cost to have faulty/defective work corrected, or, if the work was not completed, the cost of having another contractor complete the project. Needless to say, if another party breaches a contract, it is important to keep all documents reflecting the damages (i.e., financial harm or effects) that resulted from the breach – whether that is invoices from another contractor that had to be hired, receipts reflecting purchases that had to be made, or even financial statements demonstrating that the other party’s breach resulted in a loss of income to a business.
As you can see, successfully bringing a claim for breach of contract against another individual or business requires proving three critical elements. That is why it is a good idea to consult with an attorney who is experienced in contracts and the enforcement of contracts.