Sign in / Join

Entrepreneur Litigation Prep: Breach of Contract

Entrepreneur Litigation Prep: Breach of Contract

There are countless areas in which an entrepreneur may have a need for business litigation to resolve a dispute against another business. One common type of business litigation case is a “breach of contract” which simply means that a legal promise, or contract, has been broken. A contract is a written or oral agreement between parties, which sets out the obligations and expectations of both sides to each other. Contracts can be simple or complex in nature. There are many different types of contracts, such as contracts with investors, employees, vendors and customers, which are often found in business and employment relationships. When a business does not fulfill its obligations under the contract, it is called a breach.

The elements of a breach of contract claim under Texas law are:1)Tyco Valves & Controls, L.P. v. Colorado, 2012 WL 159946 (Tex. App.—Dallas 2009, petition for review filed); Prime Prods., Inc. v. S.S.I. Plastics, Inc., 97 S.W.3d 631, 636 (Tex. App.—Houston [1st Dist.] 2002, pet. denied).

  • The existence of a valid contract;
  • Performance or tendered performance by the non-breaching business;
  • Breach of the contract; and
  • Damages to the non-breaching business resulting from that breach.

The general rule is that the non-breaching business should be restored to the position it would have been in had the contract been performed. In other words, the non-breaching business is generally entitled to all actual damages necessary to place it in the same economic position in which it would have been had the contract not been breached.2)Abraxas Petroleum Corp. v. Hornburg, 20 S.W.3d 741 (Tex. App.—El Paso 2000). The non-breaching business damaged by the breach, may seek remedies in law and equity from the breaching business.

Types of breach of contract remedies in law (monetary damages) may include:

  • Actual damages. Actual damages (sometimes referred to as compensatory damages) compensate for actual proven losses and are intended to simply put the business back where it was before it suffered the loss. Actual damages include most of the measures of damages that we see in breach of contract litigation;
  • Consequential damages. Consequential damages (sometimes referred to as special damages) are damages which do not derive directly from the breach of contract, but from the results of the breach and are more indirect in nature. Consequential damages differ from actual damages in that they are caused by special circumstances beyond the contract itself. A non-breaching business may recover consequential damages, if the breaching business knew, or should have known, that special circumstances would cause the non-breaching business to suffer an additional loss;
  • Exemplary damages. Exemplary damages (sometimes referred to as punitive damages) may be awarded both as a punishment and to set a public example against a breaching business in a sum determined by the trier of fact for the breaching business’ intentional conduct. One might see such an award in the case of a company knowingly selling a defective product that hurt a consumer. Texas law provides that an award for exemplary damages is justified only upon proving fraud, malice, or gross negligence by clear and convincing evidence;3)Tex. Civ. Prac. & Rem. Code Ann. § 41.003 (West 2008). and
  • Attorneys’ fees. Chapter 38 of the Texas Civil Practice and Remedies Code allows recovery of reasonable attorneys’ fees, subject to the judge’s discretion, in breach of contract cases in addition to the amount of a valid claim and costs.4)Tex. Civ. Prac. & Rem. Code Ann. § 38.001(8) (West 2008).

Equitable remedies are typically awarded when monetary damages will not properly remedy the situation. Types of breach of contract equitable remedies may include:

  • Injunctive Relief. Injunctive relief is an equitable remedy in the form of a court order called an “injunction” that prohibits or compels a business to do specific acts;
  • Specific Performance. Specific performance is an extraordinary equitable remedy where the court orders the breaching business to actually perform on the contract. Specific performance is typically reserved for cases when goods or services are unique and no other remedy will be adequate;
  • Contract Amendment. The former contract is amended or modified with a new contract reflecting the parties’ true intent; and
  • Contract Cancellation. The court may cancel the contract altogether and a new one may be formed to meet the parties’ requirements.

Understanding damages in a breach of contract claim is important prior to asserting a claim so that a business knows what is recoverable and what is not recoverable. It is also important so that the business knows how to prove actual damages.

Contract law is complicated and situations such as a breach of contract require experience to navigate and resolve. The resolution of such disagreements can be a high-stakes matter for all involved. A growing number of contracts require businesses to first attempt mediation or other alternative dispute resolution procedures before filing in a court at law. At times a confidential, economical, and agreeable resolution can be reached allowing the businesses to continue transacting business with each other on favorable terms.

Whether initiating or defending a breach of contract claim, it is necessary for the entrepreneur to determine the overall objective for resolving the dispute. In some cases, litigation may be necessary to protect financial interests and to ensure that financial assets are either recovered or not entirely lost. Effective alternative dispute resolution strategies to expeditiously and inexpensively resolve disputes may be needed.

If you have any questions about whether you or your business have a need for dispute resolution contact us today at 512-320-0601 for a complimentary consultation with an attorney to discuss.

LEGAL DISCLAIMER: This article is not intended to be, nor may it be used as, legal advice or tax advice.  This article shall be used solely for general, non-directed informational purposes.  No attorney-client relationship has been formed by virtue of this article and Moster Wynne & Ressler, P.C. has in no way agreed or consented to provide you with legal representation by virtue of this article.

Footnotes   [ + ]

1. Tyco Valves & Controls, L.P. v. Colorado, 2012 WL 159946 (Tex. App.—Dallas 2009, petition for review filed); Prime Prods., Inc. v. S.S.I. Plastics, Inc., 97 S.W.3d 631, 636 (Tex. App.—Houston [1st Dist.] 2002, pet. denied).
2. Abraxas Petroleum Corp. v. Hornburg, 20 S.W.3d 741 (Tex. App.—El Paso 2000).
3. Tex. Civ. Prac. & Rem. Code Ann. § 41.003 (West 2008).
4. Tex. Civ. Prac. & Rem. Code Ann. § 38.001(8) (West 2008).