Commercial disputes are mostly contract disputes, and contract claims have a familiar shape. Understanding which element the case will actually turn on saves a great deal of money.
The four elements
- A contract existed. Offer, acceptance, consideration, and terms definite enough to enforce.
- You performed, or were excused from performing.
- The other side breached.
- The breach caused you damages.
In practice, elements one and three are usually conceded or quickly resolved. The cases are won and lost on two and four.
Element two: your own performance
Defendants win a surprising number of contract cases by showing the plaintiff breached first. If a party’s failure to perform was material, the other side may be excused from performing. So the first question in evaluating your own claim should be the uncomfortable one: what did we fail to do, and can it be characterised as material?
Materiality generally turns on how much of the expected benefit the other side lost, whether they can be adequately compensated, and whether the failure was in good faith.
Element four: damages, and their limits
This is where most contract cases are decided, and where expectations most often diverge from law.
Expectation damages are the default: enough to put you where performance would have. Not punishment, not disgorgement of the other side’s profit.
Consequential damages — lost profits, lost business opportunity — are recoverable only where they were foreseeable at contracting and are provable with reasonable certainty. Both hurdles are real. Lost profits for an established business with a track record are provable; for a new venture they are much harder.
The contract’s own terms usually control. Limitation-of-liability clauses, consequential-damages waivers, and liquidated-damages provisions are common in commercial agreements and are generally enforced between sophisticated parties. It is entirely possible to win on liability and recover very little because of a clause nobody negotiated.
You must mitigate. Damages that reasonable steps would have avoided are not recoverable.
The claims that travel alongside
Contract claims rarely arrive alone:
- Breach of the implied covenant of good faith and fair dealing — reaches conduct that complies with the letter of the contract while defeating its purpose. It does not create obligations the contract never contained.
- Unjust enrichment — pleaded in the alternative for when no enforceable contract is found; generally unavailable where one governs.
- Fraud in the inducement — where the contract was procured by misrepresentation. Different damages, and sometimes a route around a limitation clause.
- Tortious interference — against a third party who induced the breach.
What decides cases in practice
Documents. Contract disputes are won by the party whose contemporaneous record is better — the emails around performance, the change orders, the notices given or not given. Two things follow.
Notice provisions matter more than people expect. Many agreements require written notice and an opportunity to cure before termination. Terminating without following that process can convert a strong position into a breach.
Preserve documents as soon as a dispute is reasonably anticipated. The obligation to preserve arises earlier than most people assume, and the consequences of deleting material afterwards are worse than whatever the documents said.