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Mary Harp
Narkon/Lancaster
BA 236 Contract Management
4 December, 2016

Breach of Contract: Types, Consequences and Remedies

Per Small Business Find Law, in the real world of business, delays happen, financial problems
can crop up, and other unexpected events can occur to hinder or even prevent a successful
contract from being carried out (Breach). Breach of contracts cannot always be anticipated and
so businesses need to make sure that they are using the appropriate legal terms and then have an
attorney review the contract prior to either party signing.

A breach of contract is when one or more terms of a valid contract (written, oral or implied)
has been broken. A contract is any agreement between individuals or businesses in which one
side agrees to do something for the other in exchange for something in return. All contracts
come with an obligation that each party carry out its terms in good faith. Good Faith means
each party should be treated fairly and honestly. There are a variety of things that constitute a
contract and some examples are loans, oral contracts, and an agreement to exchange goods,
services or money but however, a gift is not a contract.

A breach can be in the form of a material breach which if it is so substantial that it defeats the
purpose of making the contract in the first place. In a material breach, the other party can simply

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end the agreement. Factors for a material breach include whether the other party is deprived of
what they bargained for, can the other party be compensated for their loss, what will the
breaching party lose, what are the chances that the breaching party will fix things, and if the
breaching party will act in good faith. (Monczka)

A second example of a breach of contract is called an anticipatory repudiation and this is

where one party has no intention of living up to their obligations under the contract. In this type
of breach, a remedy could be either termination of the contract or legal action. One of the
clauses that should be included in a contract if either party has a concern that the other party may
not hold up its side of the contract is a cancellation clause or a clause that places limitations of
damages.

Another type of breach of contract would be a breach of warranty. A warranty is a promise

by the manufacturer or seller of a product that the product is of certain quality or that they will
repair the product for a stated period of time. A warranty contract can be in the form of express
written, express oral or implied. When a breach of warranty occurs, the company should be
notified in writing of the problem and given a reasonable amount of time to repair/fix the issue
(Monczka).

When a party breaches a contract, one remedy is to send a notice of breach known as a
demand letter and it should describe the breach in detail such as how the party failed to
perform its part of the contract. There are many remedies depending on the type of contract as
well as the type of breach. One relief is for damages which involve asking for monetary

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compensation. The other remedy is performance which involves forcing the other side to do
what was promised in the original contract (Staff).

The Uniform Commercial Code (UCC) defines if the sale items are not up to standards
outlined in the contract or the seller fails to make a timely delivery of the sale items, it is a
breach of contract caused by the seller. A non-breaching party has a right to take legal action to
recover losses that the breach caused. The losses may include incidental damages for injuries a
party suffered as a result from the breach or an amount stipulated in the contract to cover a
breach (Lambert).

When pursuing remedies for a breach of contract, an individual or business needs to consider
whether it would be cost-effective for litigation. Any party involved in a breach of contract
might want to consider an alternative remedy such as direct negotiation, mediation or possibly
arbitration.

What laws govern contracts? Contracts are usually governed and enforced by the laws of the
state that the agreement was made. Contracts may be governed by one of two types of state
laws. Most contracts are governed by the states common law. Common law does not govern
contracts that are primarily for the sale of goods, however, the Uniform Commercial Code
(UCC) does.

Chapter 72 of Oregons Revised Statues governs contract law throughout the state, including
the requirements of contract formation and remedies for breach of contract (Redsteer). As in
most contracts, there must be an offer, acceptance, mutual assent and consideration. A remedy

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for buyers is that if a seller fails to deliver the agreed upon goods or services, a buyer can find
another supplier or the buyer can recover damages. A seller can refuse to deliver goods if a
buyer has not paid for them before the delivery date and the seller may also resell the goods to
another buyer.

Types of remedies are compensatory damages, restitution, punitive damages, nominal

damages, liquidated damages, quantum meruit, or remedies in equity such as cancellation and
specific performance. In the next few sections, there are real-life examples of breach of contract
cases along with the outcome for both parties as well as an opinion as to how this could have
been avoided.

The first case is Sackett vs Spindler. Sheldon Sackett entered into a contract to buy stock
from Paul Spindler. The agreement stipulated that Sackett would make three payments due on
specific dates. The first payment was made on time and the second payment was two days late.
The third payment was paid ahead of schedule but was paid with a check but no funds were in
the checking account. Spindler notified Sackett that the third payment had to be made by a
specific date and even gave Sackett an additional seven days. Approximately a week later,
Spindler received a telegram from Sackett stating he was ready to fulfill his obligation and at that
point in time, Spindler said he was unwilling to complete the contract and he would be pursuing
further legal action (Sackett).

The question is, whether repudiation is justified where a material breach has occurred
(Sackett). The court found that Sacketts failure to tender the balance due when the contract
constituted a material breach. Spindler could not be certain that Sackett would meet his

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obligation so he was justified in repudiating the contract. Could this have been avoided? Yes,
Spindler should have not agreed to Sackett making payments and required the money up front as
well as instead of being the nice guy and extending the payment due date, he should have
thought about the fact that business is business and it is not the time or place to be the nice guy.

The second case is OSCO v. Cincinnati Insurance Co. In that case, a local meat packing and
processing plant suffered damage to the contents of its freezers due to a hurricane. The insurance
agent who sold OSCO its policy had made a mistake in the address of the plant, although the
plant and premises surrounded the end of a dead end street, and had always had the same address
for the entire premises. The insurance company insisted that it would only pay for lost inventory
on one side of the street, and refused to pay the other, and undisputed, parts of the loss until the
insured accepted the insurance company's position. A jury found Cincinnati Insurance Co. to be
not only negligent in its handling of the claim, but also willful and reckless. The company's
behavior turned a $231,000 claim into a $2.1 million claim due to the resulting award of
consequential damages and punitive damages (Sample). Could this have been avoided? Yes,
Osco should have checked all the paperwork on his insurance policy to insure everything was
correct with no errors and then contacted his agent Had he done all of this initially, his claim
would have been processed sooner. Also, the agent should have gone out and inspected the area
and he would have caught the mistake as well.

In conclusion, the sad fact is that no matter how hard an individual or businesses works on
putting together a contract, there will always be that one person or business that will breach a
contract. All contracts should be reviewed by an attorney to make sure that as many possible
scenarios are covered and stipulated. Always make sure that both parties understand everything

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that is written in the contract and prior to signing that any unanswered questions are resolved.
The world is far from being perfect and in our day to day activities we should always make sure
to be careful to read anything we sign.

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Works Cited

"Breach of Contract and Lawsuits." Find Law, Thomas Reuters, 2016,

smallbusiness.findlaw.com/business-contracts-forms/breach-of-contract-and-lawsuits.html/.
Accessed 29 Nov. 2016.

Lambert, Richard. "Defining a breach of contract and its consequences." NJ Bix Lawyer,
Dunn Lambert, LLC, 11 Dec. 2014, www.njbizlawyer.com/blog/2014/12/defining-a-breach-ofcontract-and-its-consequences.shtml. Accessed 26 September. 2016.

Monczka, Robert M., Robert B. Handfield, Larry C. Giunipero, and James L. Patterson.
Purchasing and Supply Chain Management. Sixth ed., Boston, Cengage Learning, 2016, pp.
571-616.

Redsteer, Andrine. "Oregon Laws on a Breach of Contract." EHow, EHow,

www.ehow.com/info_8017741_oregon-laws-breach-contract.html. Accessed 9 Sept. 2016.

"Sackett v. Spindler." CaseBriefs, Bloomberg Law, 2016,

www.casebriefs.com/blog/law/contracts/contracts-keyed-to-knapp/consequences-ofnonperformance-material-breach-anticipatory-repudiation-and-express-conditions/sackett-vspindler/. Accessed 7 Nov. 2016.

"Sample Cases: Agent Mistake --Hurricane Coverage Denied." Janet, Jenner & Suggs, LLC
2016, www.janetjennersuggs.com/case-trial-expertise-cases.html. Accessed 24 Oct. 2016.

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Staff, FreeAdvice. "Remedies for Breach of Contract." Free Advice Legal, Advice Company,
1995-2016, law.freeadvice.com/general_practice/contract_law/remedies_breach.htm. Accessed
13 Nov. 2016.

Stim, Richard. Contracts: The Essential Business Desk Reference. First ed., Berkeley, Nolo
Law for All, 2011, pp. 67-74.

Warner, Ralph. Everybody's Guide to Small Claims Court. Sixteenth ed., Berkeley, Nolo Law
for All, 2016

"What Is the Most Common Legal Remedy for a Breach of Contract?, FindLaw,
smallbusiness.findlaw.com/business-contracts-forms/breach-of-contract-and-lawsuits.html/.
Accessed 9 Nov. 2016.