Breach of Contract Explained: Types and Consequences

Breach of contract disputes are the most common type of business litigation. Therefore, nearly all New York and New Jersey businesses will likely have to deal with a contract dispute at least once. Understanding when to file a breach of contract lawsuit and how long you have to sue for breach of contract is essential for protecting your business interests.

To help you navigate the process and eliminate some stress that accompanies a contract breach, this article answers many of the top questions our clients ask, including:

• What constitutes a breach of contract
• What is a material breach
• What remedies are available
• How long do you have to sue for breach of contract

What Is a Breach of Contract?

A breach of contract is a legal claim asserted by one party against another for failing to fulfill the terms of a contract. Examples include a one party failing to deliver promised goods or services by the date set forth in the agreement or a party failing to make payments in accordance with terms of the contract.

Material v. Non-Material Breach

Contract breaches can generally be classified as material or non-material. The distinction is important because it impacts the legal recourse available to you.

A “material” breach is a breach so significant that it reaches the core of the agreement and negatively impacts its entire outcome. In contrast, a “non-material” breach often involves less important details. Often, it is obvious that a breach is material. For instance, if you hire a company to clean your office building twice a month, and they never show up, it is likely a material breach. But what happens if they miss one scheduled cleaning?

How Courts Determine if a Breach is Material

In situations that are less clear, courts consider several factors to determine whether a contract breach is material, including:

• Progress of contract performance: A court is more likely to find a non-material breach in the later stages of an agreement
• Extent of failure: The court will evaluate the losses suffered by the non-breaching party to determine if they impact the heart of the bargain. If so, it will generally find a material breach
• Intent of parties: If the court finds that the breaching party acted unfairly or in bad faith, it is more likely to characterize the breach as material
• Ease of rectification: If the problem could be remedied using reasonable effort and expense, the court is more likely to find a minor breach
• Impact on breaching party: Even though the breaching party may be responsible for the problem, the court will still evaluate the severity of the impact (e.g., forfeiture) if the non-breaching party’s performance is excused
• Contract provisions: In some cases, the terms of the contract specify what constitutes a material breach. The court will look to those provisions to make its determination

Once the type of breach is determined, you will have a better understanding of your potential remedies. After a material breach, the aggrieved party does not need to perform its part of the contract. It may also file a breach of contract lawsuit to recover any losses. If the contract breach is minor, the non-breaching party may only sue to recover damages.

Actual Breach vs. Anticipatory Breach

Contract breaches can also be categorized as an actual breach or an anticipatory breach. An actual breach occurs when one party fails to fully perform the terms of the contract. Meanwhile, an anticipatory breach is when a party states in advance that they will not be delivering on the terms of the contract.

A contract party facing an anticipatory breach has a range of options and does not need to wait for the other party to actually breach the agreement. The non-breaching party often has the right to immediately terminate the contract and may also seek compensation for their losses. In some cases, the non-breaching party may seek a court order compelling the breaching party to perform their obligations under the contract.

When Should You File a Breach of Contract Lawsuit?

If you have a contract with another person or entity and they fail to fulfill their obligations under the contract, you may be entitled to file a lawsuit to recover any damages that you lost as a result. However, before filing a breach of contract lawsuit, it is important to carefully review your contract to determine what steps, if any, you must take before filing suit. For example, contracts often allow the breaching party a reasonable amount of time to cure an alleged contract breach.

It is also advisable to consult with an attorney to determine if filing suit is your best course of action. Just because you can file a lawsuit does not always mean you should. In many cases, you may be able to negotiate a settlement with the other party that accounts for your losses without the time and expense of litigation.

How Long Do You Have to Sue for Breach of Contract?

To preserve your legal rights, it is imperative to file a breach of contract lawsuit within the applicable statute of limitations. Each state has enacted statutes prescribing a period of limitation for the bringing of certain types of legal action, with the goal of encouraging the resolution of legal claims within a reasonable amount of time. In New Jersey and New York, how long you have to sue for breach of contract is generally six years for most contracts.

Understanding this timeframe is critical, as missing the statute of limitations will likely prevent you from pursuing legal action regardless of how clear the breach may be.

Should You Consult an Attorney After a Contract Breach?

How you respond to a potential breach of contract can significantly impact your legal rights and the amount of compensation you can recover. We strongly encourage businesses to consult with experienced legal counsel before taking any action, including filing a breach of contract lawsuit.

At Scarinci Hollenbeck, our attorneys have decades of combined experience helping clients navigate breach of contract situations effectively. Our dedicated business attorneys work closely with clients to develop cost-effective legal strategies that achieve their goals, whether that means preserving a business relationship, filing a lawsuit to recover losses, or demanding specific performance.

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Need guidance on a breach of contract issue? Contact us today to discuss your legal options and understand how long you have to sue for breach of contract in your specific situation.