4 Elements of a Breach of Contract Claim (and more)
Under Colorado law, a cause of action for breach of contract claim has four elements:
- The existence of a contract;
- Performance by the plaintiff or some justification for nonperformance;
- Failure to perform the contract by the defendant; and,
- Resulting damages to the plaintiff.
See, e.g., W. Distrib. Co. v. Diodosio, 841 P.2d 1053, 1058 (Colo. 1992). A plaintiff suing for breach of contract must demonstrate and prove each of these elements in order to recover some sort of relief or remedy such as specific performance or damages. Although it is important to know these elements when filing an actual lawsuit, it is also helpful when drafting a demand letter too.
The first and most-defining element of a breach of contract claim is the first element, the existence of a contract – whether an oral contract or a written contract. Second, the plaintiff must show that he or she performed the duties under the contract. If both parties claim a breach the contract then there may be no relief unless one party’s breach was more severe than the other’s. Third, the plaintiff must show the provision or term of the contract that the defendant breached and how. Finally, if the plaintiff shows all three of these things, the plaintiff must show that it has been damaged in some way and the amount.
Now that you know the basics, read on to learn the more advanced information.
How Do I Prove that a Contract Exists?
All contracts have three components:
- Acceptance; and,
In general, this means that one of the parties to the contract needs to have made some sort of offer and the offer needs to have been accepted (rather than countered, rejected, or ignored). The consideration component is a legal term of art that generally requires that both parties to the contract receive something of value, even if it is of little value. Consideration can be something received, but it can also be something given up (for example, when someone pays you not to do something).
Does the Contract Need to be in Writing?
Not usually. Contracts can be made using a writing, an oral agreement, or even partly in writing and partly oral. However, some contracts do need to be in writing because of a doctrine called the statute of frauds.
What If Someone Performs Some, but not all, of the Contract?
In general, Colorado contract law uses the term “substantial performance” to describe when a contracting party complies with the “essential obligations” of the contract. This comes up when one party defends a breach of contract claim by arguing that the defendant breached the contract because the plaintiff never performed (or did what they said they would). So long as the plaintiff has performed the “essential obligations,” he or she can continue to bring the breach of contract claim (but may be liable for a setoff due to any breaches of the contract by them).
What can I do if the Person I have a Contract With is Acting in Bad Faith?
“Colorado, like the majority of jurisdictions, recognizes that every contract contains an implied duty of good faith and fair dealing.” Amoco Oil Co. v. Ervin, 908 P.2d 493, 498 (Colo. 1995). In performing under a contract, the parties must honor their reasonable expectations and performance requires “faithfulness to an agreed common purpose and consistency with the justified expectations of the other party.” See id. If a party to a contract acts in bad faith, they may be in breach of the contract because doing so would be a breach of the “covenent of good faith and fair dealing.”
What are the Types of Damages & Remedies Available?
A party breaching a contract is liable for “losses that are the natural and probable consequence of the defendant’s breach of the contract.” In general, this means that the plaintiff can recover the amount of damages necessary to put them in the position they thought would have been in had the contract been performed. See, e.g., Pomeranz v. McDonald’s Corp., 843 P.2d 1378, 1381 (Colo. 1993) (“In a breach of contract action, a plaintiff may recover the amount of damages that are required to place him in the same position he would have occupied had the breach not occurred.”).
Alternatively, a party may be entitled to “specific performance” of the contract, which is a remedy issued by a court directing the party to perform a component of the contract. This sort of a remedy may be ordered when money or damages are insufficient to remedy the loss. Examples include times when performance would have been completed by the delivery of a one-of-a-kind item such as a unique house or piece of art.
What About Defenses?
The best defense to a breach of contract claim is typically to argue that you did not breach the contract! Every case is obviously different but, in general, most parties to a breach of contract action agree that (1) a contract exists, (2) the contract is enforceable and not void, and (3) that they performed under the contract. For example, in a contract for the construction of a home where the homeowner sues the builder for breach of contract related to construction defects, the most common defense is that there are no construction defects. In cases where a dispute regarding payment exists, the most common defense is that payment was either made or was not required (or not fully required).
The second best way to defend many breach of contract claims is to argue that the damages are minimal or zero. In this defense, the defendant agrees that a contract exists, agrees it was breached, but disagrees that any damage was caused. Essentially, this is the “no farm, no foul” defense.
If neither of these two defenses could prevail, here are some of the major legal defenses to a breach of contract claim, the most common of which is the statute of limitations.
Statute of Limitations
The statute of limitations is a doctrine that bars claims (including breach of contract claims) after a certain amount of time has passed. For breach of contract claims in Colorado, that amount of time is generally three years but it can be longer or shorter under certain circumstances. Whether a claim is or is not barred by the statute of limitations is extremely complicated and fact-intensive. You should accordingly always consult an attorney about whether a claim is barred by the statute of limitations.
Fraud in the Inducement
In simple terms, the defense of fraudulent inducement goes to the actions that resulted in the formation of the contract. Essentially, the defendant argues that he or she would have never entered into the contract but for a series of lies, misrepresentations, and concealments by the plaintiff. If the defendant prevails on this defense, the defendant “must elect either to rescind the entire contract to restore the conditions existing before the agreement was made, or to affirm the entire contract and recover the difference between the actual value of the benefits received and the value of those benefits if they had been as represented.” Trimble v. City & Cty. of Denver, 697 P.2d 716, 723 (Colo. 1985).
Undue influence is similar to fraud in the inducement in that it goes again to the actions that resulted in the formation of the contract. The defendant may argue that the plaintiff put extreme levels of pressure or otherwise “dominated” their free will by using words, conduct, or both. Essentially, the defendant argues that he or she was forced to enter into the contract and had no other choice. Under these extreme circumstances, the defendant is not liable to the plaintiff for the breach.
Duress is another related defense that goes to the formation of the contract. With duress, the defendant argues that he or she had no choice but to sign the contract due to a “wrongful act” or “wrongful threat” (i.e. sign this contract—or else!). For example, Colorado courts have held that threatening to “blacklist” someone unless they sign a contract is duress: “The threat of blacklisting an employee in an industry is a form of coercion that constitutes duress as a matter of law, and formation of an employment contract under such duress is ineffective.” Pittman v. Larson Distrib. Co., 724 P.2d 1379, 1384 (Colo.App. 1986).
The defense of minority relates to minors under the age of 18. If a minor enters into a contract, the contract is “voidable” and the minor can void the contract so long as he or she renders the contract void before the age of 18 or in a “reasonable” time thereafter. See, e.g., Keser v. Chagnon, 410 P.2d 637, 639 (Colo. 1966).
Although there is a “presumption of sanity,” a party can defend a breach of contract action by arguing that he or she was temporarily (or permanently) incapable of entering into the contract. Hanks v. McNeil Coal Corp., 168 P.2d 256, 260 (Colo. 1946). A person is temporarily incapacitated when he or she can show that they were under an “insane delusion” and that, because of such delusion, could not understand the terms or effect of the contract or to act rationally in the transaction.
Impossibility of Performance
The defense of impossibility of performance is straightforward. If the defendant cannot perform under the contract and the event causing the impossibility of performance is outside of the defendant’s control then the defendant may be “excused” from performance. A common example of this defense is a change in the law. If a defendant agrees to do something that then becomes illegal then performance can be excused. A related term is the doctrine of “impracticability.” A defendant need not show that performance is literally impossible, but can also show that performance is impracticable.
But what does “impracticable” mean? It means that performance could only be completed by “extreme and unreasonable difficulty, expense, injury or loss.” See City of Littleton v. Employers Fire Ins. Co., 453 P.2d 810, 812 (Colo. 1969). That is, performance will be excused not only when performance is impossible, but also when it is almost impossible.
The doctrine of waiver is easy to explain, hard to litigate. In general, if a plaintiff gives up their right to pursue their claim against the defendant, the claim is “waived.” This can generally only occur when the plaintiff (1) knows that the defendant has a contractual obligation to do something, (2) knows that the defendant breached the obligation, (3) the plaintiff intended to give up this right, (4) and, the plaintiff voluntarily gave up the right. A waiver is always difficult to litigate because the plaintiff would probably not be filing a lawsuit if they believed that they waived their rights. Accordingly, these cases often have the plaintiff and the defendant take completely different positions. More than how waiver is treated litigation, what you need to know is…do not waive your claims or indicate during negotiations that you intend to do so.
What About Others Claims?
Almost all lawsuits involve more than one type of legal claim. Breach of contract claims are commonly accompanied by other claims such as negligence and unjust enrichment. Learn more about those claims here: