Contracts are legal agreements between two or more people or businesses. Each side agrees to do or refrain from doing an act. Thus, for example, one person agrees to pay money in return for being able to buy a car or food. Every business, from global corporations to sole proprietorships, relies upon contracts with customers, suppliers, partners, and even employees to do business. Contracts are written or agreed upon for sound reasons, like taking out a loan, or hiring a person to make a repair.
Numerous rules apply to contracts. Federal, state, or local law may affect your rights if someone breaches a contract. For example, if a landlord owns an apartment and a tenant fails to pay the lease, the landlord can seek to evict the tenant and demand payment for the balance of the lease. The lease sets the terms of the contract, but landlords must comply with Tennessee’s laws on evictions.
Generally, contracts for the sale of real property are in writing. As a rule, contracts in writing are easier to enforce than verbal agreements – especially if a dispute arises. There are different remedies if someone breaches your contract. The remedies are generally determined by the language in the contract.
If your contract is breached, generally the person or business that complied with the contract can seek financial damages which include:
Compensatory damages. This is the calculation of the money that is due because of the breach. According to The Balance, compensatory damages include:
- General damages. These are damages that are directly due to the contract breach. For example, let’s assume you make a contract with the XYZ company to purchase software to set up your business accounts for a total of $5,000, and time was of the essence as stated in the contract, and a condition of the sale is that you receive working software within 30 days, in time for your grand opening. What are your rights if the XYZ company tells you that they can’t supply the software in 30 days, even though you paid the $5,000 in advance and both parties signed a contract? In this case, your general compensatory damages may be:
- Reimbursement of the $5,000 you paid in advance.
- The cost to obtain the same or similar software from another company before the grand opening, over and above the $5,000.
- Special damages. These damages, also called consequential damages, are damages that are not an immediate consequence of the contract breach. For example, let’s assume the same scenario where you order software that you need for the grand opening of your business. We’ve already discussed the general damages if the software isn’t supplied or doesn’t work. If the contract makes clear that if the running software isn’t supplied in time, you’ll need to hire an accounting service until the software works; then you can claim special damages for the cost to pay the accounting service. You might also be able to claim any lost profits if the software is delayed beyond the grand opening date, provided the amount of lost profits isn’t speculative. Experienced Nashville business lawyers work to draft contracts to clarify what special damages should be foreseeable and why they are not speculative.
Liquidated damages. Some contracts provide that if one side or the other breaches the contract, then the party in breach of the contract must pay the non-breaching party a specific sum of money. Liquidated damages may be a lump sum or may vary on when the contract is completed. For example, a business that hires a contractor might want a liquidated damages clause that provides for a $1,000 a day penalty for each day the contractor is late. Courts may review the amount of liquidated damages to see if the damages reasonably relate to the amount of compensatory damages.
There may be some remedies other than receiving money for a breach of contract. These remedies include:
- Specific performance. This is a court-ordered remedy where the court orders the party in breach of the contract to comply with the contract. Generally, courts hesitate to order specific performance of a contract when compensatory (money) damages will suffice. Specific performance may be ordered where paying money doesn’t satisfy the contract, such as in the purchase or transfer of real property. Real estate contracts generally permit specific performance requiring a seller who defaults on a sales agreement to complete the conditions to transfer the property to the buyer.
- This type of remedy is similar to specific performance in that the party in breach is required to comply with a court order to act in a certain way. An injunction differs from specific performance in that the party in breach is generally ordered NOT to do something, as opposed to being ordered to do something. For example, many businesses have non-compete clauses that prevent someone who leaves the company from competing with the company for a specific period of time. The employee who leaves is ordered NOT to compete.
- Here, the party who is not in breach seeks to end the contract as if it had never been written. A recission may be considered if the breach is material (substantial) and other factors are met. For example, in our software discussion, if the business never advanced the $5,000, and the supplier said it could not provide the software until 60 days after the grand opening, the business could seek to rescind the contract.
- Nominal damages. Here, the court determines that a breach has occurred but decides the amount of harm is minimal or can’t be calculated. An award of nominal damages is generally a moral victory though there may be some legal advantages an experienced Nashville business lawyer can explain.
The law of contracts and remedies is complex. This summary is general. If you need to enforce or defend a contract dispute, contact us. Usually, courts enforce contracts as written.
At the Law Office of Perry A. Craft PLLC, our Nashville business lawyer understands how to draft, negotiate, prepare, and litigate contracts. We many types of business contracts. If you enter into a contract and the other party to the contract isn’t in compliance, call our Nashville office at 615-551-5565 or fill out our contact form to speak with a seasoned business lawyer.
Perry A. Craft has dedicated his life to helping people in need. He has tried, settled, or resolved numerous civil and criminal cases in State and Federal courts, and has represented teachers and administrators before school boards, administrative judges, and the state Board of Education. Learn more about Attorney Craft.