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In an ideal business environment, contracts signed by two parties would be beneficial for all involved and no disputes would arise; however, this is often not the case as financial problems, delays, and other unexpected events can occur that can hinder or prevent a written contract from being carried out according to its terms – and one party will end up suing the other.

When a contract is no longer able to be carried out as originally written and agreed upon, a breach of contract has occurred. Depending on the specifics, a breach can occur when one party does not perform in accordance with the terms of the contract, fails to perform on time, or does not perform at all. Complying with the terms of a contract should be a top priority for all Texas businesses, as failing to do so can lead to lengthy legal disputes, extensive financial penalties, loss of business, and a damaged reputation.

For an alleged breach of contract case to be valid, four elements must be present, so understanding these elements is critical:

1. The contract must first exist.

If the contract is not valid, it cannot be enforced. Proof that the contract is valid is required to move forward with a breach of contract case. Contracts can be written or oral; however, it is always easier to prove a written contract. For the contract to be valid according to Texas law, it must contain an offer that one party makes to another, an acceptance of that offer that agrees to strict compliance with its terms, details of what each party must abide by, clear communication that both parties have fully agreed to the terms, and execution and delivery of the agreement showing it is binding and mutual. If all of these requirements are met, the contract with be recognized as valid under Texas law and a corresponding breach of contract action can be pursued. If there are claims of fraud, indications the contract was signed under duress, or violation of public policy within the contract, it may not be enforceable.

2. The plaintiff performed according to the terms of the contract.

This plaintiff (the party filing the breach of contract lawsuit) must be able to prove that he or she fulfilled their obligations under the contract.

3. The defendant has breached the contract by not fulfilling their obligations.

When a defendant has not performed according to the contract, it can be considered a minor or material breach. If the breach is minor and does not impact fulfillment of the terms of the contract, a lawsuit may not be worth pursuing. For example, if the contract specifies a delivery date for a product, and a reasonable delay by one of the parties occurs, it may be considered a minor breach of contract as that party will still perform by providing the agreed upon product. If a breach is minor, the non-breaching party is still required to perform under the contract but can recover any damages resulting from the breach.  In the previous example, if one party delivers the product late, the non-breaching party will still pay for the delayed items but may recover any damages caused by the delay.

A breach is considered material when the party receives something significantly different than the contract specifications as the result of the breaching party’s failure to perform according to the contractual terms. For example, if a contract specifies the sale of a shipment of apples and the buyer receives a shipment of oranges, the breach is material. When a breach is material, the non-breaching party is not required to perform under the contract and immediately has the right to all remedies for breach of contract. A material breach that is major, or one that prohibits the contract from being fulfilled, often requires legal action.

4. The plaintiff was damaged as a direct result of the breach.

The first step to determining damages in a breach of contract case is to look closely at the terms of the contract. There are often penalties written into the contract; however, if no specific terms are included, the court will consider awarding the following:

• Specific performance of the contract.
• Money lost due to the breach of contract.
• Compensation for time lost due to the breach of contract.
• Reimbursement for expenses incurred by the plaintiff.
• Payment for future time, money, and expenses that will be lost due to the breach.
• Any other damages the court finds appropriate according to the terms of the contract.

If all elements listed are present, there may be grounds for legal action. In Texas, to pursue legal action for a breach of contract, the breach must have occurred within the past four years. The breach of contract claim must be filed within that timeframe to be pursued. This statute of limitations applies regardless of when the plaintiff first becomes aware of the breach.

Business owners with specific questions or concerns regarding a potential breach of contract should consult with an experienced breach of contract lawyer. With the knowledge and advice of experienced counsel, you will be able to make informed decisions about how to proceed with legal action. Contact us today to discuss your case at no cost.