What Is Breach of Contract?

According to the American Bar Association, a contract is a legally enforceable agreement between two or more parties. Breach of contract refers to when a party fails to satisfactorily fulfill its obligations under the agreed-upon terms. In effect, it’s a violation of the written contract terms.
As for what constitutes a breach, it can theoretically be anything that goes against the terms of your agreement . Examples of common breaches include:
• One party failing to fulfill their part of the agreement
• Conscious neglect in providing services or goods
• Signing a contract without the ability to provide services or goods
• Negligence that results in an inability to fulfill contractual obligations
• Fraud
• Anticipatory breach where one party blatantly opts out of fulfilling an agreement before the deadline
When a breach occurs, parties typically take time to resolve the issue between themselves. If they can’t reach an agreement, they will often then decide to take the matter to court. The primary goal, naturally, is to determine which party is responsible and to receive compensation for the breach. That compensation includes lost revenue and damages. Parties may also seek to terminate the contract if one party materially violates the terms.

Differences In Torts and Breach of Contract

A contract is an agreement between two or more persons to do or not to do something specified. All contracts have four elements: Offer. Acceptance. Consideration. Mutuality of obligation (reciprocal rights and obligations). A contract may be express or implied, oral or written. A tort is a non contractual, civil wrong for which the court provides a remedy in the form of an action for unliquidated damages. The damages awarded depend on the loss suffered by the claimant. [A claim for breach of contract, in contrast, is an action at law for liquidated damages, i.e., a fixed amount of money.] Courts in various jurisdictions have ruled that a simple breach of contract does not usually give rise to an independent tort cause of action. In Harris v. Staples, Inc., 268 Conn. 318 (2004), the Connecticut Supreme Court held that an allegation of unjust enrichment arising from a breach of contract "cannot stand as a separate cause of action." According to Harris, however, when "the harm alleged is different in kind than the harm alleged in the breach of contract action" an independent tort may arise. Another Connecticut case, Goodson v. Agway, Inc., 235 Conn. 175 (1995), illustrates the distinction between tort and contract claims. In Goodson, Goodson engaged agricultural businesses owned by Agway, Inc. to install a fertilizer application system. Goodson agreed to pay for the equipment and labor "at a price dictated by the defendant." In breach of the contract, Agway incurred approximately $24,000 in labor and equipment costs but demanded payment of $45,874 and sued when Goodson refused to pay. Agway alleged "tortious misrepresentation" and fraud, asserting "Bad faith on the part of the defendant in the performance of its contract, bad faith in making a false statement as to a fixed price, and bad faith in inflating the bill." The jury awarded Agway compensatory damages of $21,471 and punitive damages of $10,000 "because it found that the defendant had ‘intentionally misrepresented to the plaintiff its fixed price for the system’ and that, ‘when the defendant supplied the materials and installed the system, it knew that the price was inflated.’" The Supreme Court of Connecticut, however, rejected Agway’s argument that it "may recover both for breach of contract and the fraudulent overcharging of the plaintiff." The court ruled that "a person who is injured only by the bad faith breach of a duty that constitutes, in effect, only a breach of contract" cannot maintain a claim for tort damages. In a New Jersey case, Bascom v. Hightower, 340 N.J. Super. 98 (N.J. Super 2001), Bascom alleged he misplaced certain trust funds after receiving specific oral instructions from the beneficiary, Hightower, to deposit the funds into the beneficiary’s Bank of America account. Hightower also wrote a letter to the bank for Bascom to present with the check critizising the bank "for causing Bascom to misplace the check due to their acts and omissions." When Bascom turned over the check to Hightower, she refused to deposit it in her Bank of America account and instead brought a "new claim for specific performance" arising out of "the alleged inaccuracies of [Bascom’s] ledger statements" from 1993 through 1998. The Appellate Division of the Superior Court of New Jersey held that "allegations of criminal wrongs going to the essence of the contract or breach of fiduciary duties, may sound in tort if coupling of the two claims would satisfy the interests of justice." But in Bascom’s case, the court ruled that Hightower’s allegations "cannot stand apart from whatever misapprehension or mistake she contributed to the problem." Accordingly, the court denied Hightower’s cross-appeal and affirmed the trial court’s order to return the check to Bascom.

Legal Ramifications of a Breach of Contract

A breach of contract may cause significant damage to the contracted party. Depending on the circumstances, the aggrieved party may allege four categories of damages that come from contract law. Those damages are: Expectation damages; Reliance (or consequential) damages; Restitution (or unjust enrichment) damages; and Liquidated damages.
When a party has incurred damages due to a breach of contract, the aggrieved party may have a right to recover such damages under contract law. As an element of or separate from the contract, the liquidated damages provision provides the parties with measurable penalties for default. Sometimes liquidated damages under contract law are called statutory damages. A liquidated damages clause in a contract will be enforced only if it provides for damages that reasonably estimate the actual harm likely to result from a breach of contract. Expectation damages should provide sufficient monetary compensation to put the aggrieved party in the position it would have been in had the breach of contract not occurred. In calculating expectation damages, a judge or jury may consider foreseeable damages that the parties contemplated, known as consequential damages. Another alternative to damages under contract law is reliance damages. Damages based on reliance measure the inputs necessary to complete the performance promised in the contract. Recovery of reliance damages may not provide the aggrieved party with expectation damages, but it may provide recovery that puts the aggrieved party in the same position it would have been in had the breach of contract never occurred. If the parties have no contract allowing for recovery of expectation or reliance damages, the aggrieved party may still be entitled to recover restitution damages. A restitution remedy will at least require the party who breached the contract to give up any benefits from the other party’s detriment. The availability of liquidated damages, expectation damages, reliance damages, or restitution depends on the terms agreed to between the parties in the contract. Courts look to what the parties have agreed to in the contract, and outside of the contract the parties may have rights under tort law. Comparing tort law rights with contract law rights makes it easier to determine whether a breach gives rise to both contract law and tort law claims and rights. Breach of contract damages are limited to those arising naturally from the breach of contract. Tort damages can arise from remote and unforeseen circumstances. An intentional tort damages remedy allows recovery of the amount necessary to put the aggrieved party in the position that would have been had the breach of contract not occurred.

Can a Breach of Contract be a Tort?

It is possible for a breach of contract to be also tortuous in nature. Some common scenarios where this may be the case are if there is a fraudulent misrepresentation at the negotiation of the contract, if there is fraud in the inducement to enter into the contract, or if there is negligent conduct that violates a separate duty outside of the contract. For example, where non-performance of the contract would be a crime (such as for the sale of illegal drugs), would be an attack on the public good , would be the basis of a specific public trust and duty, a tort might be found.
As indicated above, a fraudulent misrepresentation at the time of contract negotiation would be a tort because it is an intentional violation of the law. Other scenarios in which a breach can morph into a tort would be the breach of your fiduciary duty of loyalty or your fiduciary duty of care. In addition, if the breach of the contract is intentional or malicious or negligent that leads to a physical injury or property destruction, then a tort is actionable.

The Effect of Breach of Contract on Business

Breach of contract claims impact businesses in a number of ways. In some cases, a loss of anticipated profits may be the only impact a business suffers and, assuming the business wasn’t required to continue goods or services to an "at risk" customer, it may be able to weather a breach by one party.
Even so, the manner in which a business handles a breach goes a long way toward defining its success in limiting losses and in maintaining its business reputation. Breach of a business contract, however, typically does not give rise to punitive damages under North Carolina law. Instead, punitive damages are only available for businesses in connection with tort actions, for example, a tort claim with respect to misappropriation of a business’s trade secrets or where there is an agency relationship.
If an ongoing business relationship or contract comes to a very sudden end, it might not be practically possible to terminate the remaining business that depends on the now failed business arrangement. A breached contract may itself have negative impacts on other contracts and business relationships, which makes halting operations difficult, if not financially imprudent.
As a result, a business should try to minimize the number of agreements it enters into with a particular supplier or vendor or with clients who are "at risk" of financial collapse. Every new business relationship adds another collection risk to the business’s portfolio. Because a small business can too easily become dependent on a customer or set of suppliers, it is important to ensure that no single agreement "makes or breaks" the business. Further, if an existing customer begins paying slowly or if a supplier becomes inconsistent in making deliveries or fulfillment, the relationship – and associated potential risks — should be carefully evaluated.
For example, when a business finds that a particular customer is paying more slowly or that a supplier is inconsistent in making deliveries, it should evaluate the number of contracts it has with that customer or supplier and, if appropriate, consider taking action to address the situation. Simply renegotiating contracts to address payment, delivery or quality issues may avoid loss of business but, in doing that, the business may also inadvertently add new contracts to a single customer or supplier.
Businesses should consider including a contractual provision that requires reasonable notice prior to termination of an agreement. This will allow a business to arrange for other contracts to fill the breach of a customer which may have expected the business to perform for several months, if not longer.
Risk mitigation should include insurance coverage to help with protecting company assets that may be at risk. Because a business may have greater risk exposure when entering into a single business relationship, it should evaluate its ability to insure against a default on contracts and clearly convey to its insurer that the amount of coverage needed and the portion of total assets at risk.

Where to Get Legal Advice

If you believe you have been affected by a breach of contract, breach of a statutory duty or other tortious conduct, you should seek independent legal advice as to your rights and entitlements in the circumstances. You are advised to commence proceedings as soon as possible in order to prevent your claim being barred by limitation. Claiming damages is usually the preferred remedy for an aggrieved person, however , specific performance may be sought where there is a breach of a contract to sell land. Injunctions and other equitable remedies may also be available. Specific procedures must be complied with when pursuing a claim or defence based on tortious conduct under the Limitation of Actions Act 1974 (Qld) (see above).
It is recommended that you obtain immediate legal advice if you are facing a limitation issue as the law of limitation may restrict your ability to successfully pursue your legal rights. It may be possible to obtain an extension of the limitation period in certain circumstances.
You may obtain further information not only about the Limitation of Actions Act 1974 (Qld) but also other legislation, rules and regulations, procedures for commencing or defending proceedings and a variety of matters (including forms and costs schedules), from the Queensland Courts website: www.courts.qld.gov.au.