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Breach of Contract Basics

ContractsIt is difficult to imagine a world without contracts.  It has become an everyday task to enter into contracts with companies, employees, suppliers, customers and other businesses.  But even in a contract-driven world, surprisingly few people know their legal rights when it comes to breaches of contract.

A contract theoretically could be as simple as a handshake that symbolizes a mutually understood agreement.  Most contracts are never signed and even fewer are ever legally enforced.

As the complexity of an agreement increases, a written contract document is usually the safer way to “shake on it”.  The text of the document proves very important in the event of a breach of contract. Written contracts have the full force of the law behind them and can be legally actionable if one party doesn’t uphold their end of the deal.

In order to hold the other party accountable for breaching the contract, certain relevant details about the arrangement must be proven.  For example, only valid contracts can be breached.  Part of proving a contract as valid is by establishing the basic components of a contract.

Components of Valid Contracts in Maryland:

  1. Both parties have to express clear intent to enter the contract.  The contract can only be between two competent parties. The Maryland Court considers minors and those who are mentally incapacitated to be incompetent parties. There are other circumstances that may lead to a party being deemed as incompetent. For example, if one party was under the influence of drugs or alcohol when they entered the contract, they may be considered incompetent.
  2. The exchange or offer must be for goods and services that are legal.  Both parties can counter offer and negotiate the exchange of goods or services.
  3. Both parties must mutually accept and fully understand the terms of the contract.
  4. Each party must give something to the other party and also gain something from the exchange.

In order to receive remedies for a breach of contract, the contract must have actually been breached.  Although that sounds logical, often a party will attempt to preemptively file a lawsuit based on a likelihood of a breach of contract.  There are certain situations where a party can ask the court to prevent the other party from backing out of a contract if that party has reasonable expectation of a breach of contract occurring that may cause special harm.

The party bringing the lawsuit must have followed the contract.  A person who breaks a contract first cannot later sue the other party for failing to perform as a result.

There are several solutions and remedies available to people whose contract with another party has been breached. In many cases, contracts will include measures for resolution in the event of a breach of contract. It is possible to attempt an informal resolution with the breaching party.  The two parties could modify the terms of the contract which could save time and money by avoiding going to court.

If an informal resolution is not reached, the next step is often to send the breaching party a “Notice of Breach of Contract”.  This letter usually asks the breaching party cure the breach, or in other words to right the wrong.  This letter also outlines what will happen next if the breach is not cured.

Formal proceedings such as arbitration, mediation, or litigation are often the final step if the above methods fail to produce a resolution.

The laws surrounding breaches of business contracts are complicated, especially when the facts of each case are unique.  An experienced contract lawyer will review the facts and determine if a case exists.  For more information about contract law, please contact Chester H. Hobbs IV at Bodie Law.