What Constitutes a Breach of Contract?
A ―breach of contract‖ is another name for what happens when one of the parties to a contract doesn’t do what they said they would do in that contract. A breach of contract can be legal or equitable. There are two main types of breach of contract: minor and material. The distinction between these types of breach comes down to whether the party who committed the breach still performed most of their duties under the contract, or if they did not.
Minor Breach
To qualify as a minor breach, the breach has to be immaterial to the function of the contract. In other words, it must not make the contract as a whole completely worthless. If the breach is minor, the affected party may only be entitled to recover any damages caused by the breach. For example, if the seller of a computer sold a buyer a laptop with cracked headphones , the crack would be a minor breach in that the laptop itself still works and the only problems with the computer are the headphones. Minor breach is also called partial breach, because the breach only affects part of the contract.
Material Breach
If the breach of the contract is too significant and affects the contract as a whole, then it is called a material breach. If a breach is deemed a material breach, then the non-breaching party may be entitled to a larger award of damages. The non-breaching party may also be entitled to be discharged from future contractual obligations as a result of the breach. Continuing with the example above, a material breach would occur if a seller sold the buyer a laptop with extensive water damage. As a result of the water-damaged computer, the buyers cannot use the laptop and would be entitled to receive money back for the laptop. A material breach is also commonly referred to as a total, major or substantial breach.
Drafting a Settlement Agreement
A settlement agreement is a document between the parties who are having a dispute for the business of resolving the dispute between those parties. It is not a contract. There is no mutual agreement in reaching a settlement but each party does have its separate agreement with the other and it is those bilateral agreements that bind the parties. Also, there is no requirement that the settlement agreement to be written in any particular format. It does not need to be signed for it to be enforceable. What is required for the settlement agreement to be binding is the acceptance. If one party makes an offer of settlement and that offer is rejected by the other party, then there is no binding agreement until such time as the offer is accepted by the other party.
There are three possible ways to resolve the dispute in the settlement agreement, namely:
• the monetary amount to be paid by one party to the other
• the waiver by one party of a civil claim which the other has against that party
• the undertaking by one party to stop doing something or to do something that is in dispute or may be in dispute.
I have seen many scenarios where settlement agreements can be used instead of litigation. The following are just a few examples:
• Non-disclosure agreement to assist the parties with confidential information to create their own unilateral obligations of confidentiality to replace the mutual obligations of confidentiality which are legally required to be reciprocal.
• Settlement agreement which is created to resolve a dispute without it actually being an existing dispute. This is particularly common when one party is going through a sale process and the other party is unwilling to proceed with the sale until the dispute is resolved.
All of the above scenarios come back to the parties having to balance the cost of the litigation and the commercial reality of the dispute, against the cost of negotiating and drafting the settlement agreement.
One of the main benefits of using settlement agreements instead of litigation, is that they allow the parties to save the costs associated with litigation, and if done correctly, they allow the parties to continue their commercial relationship post the dispute period because the settlement agreement is drafted with the full disclosure and agreement of the parties.
There are also a significant number of differing internet templates for breach of contract settlements which can be amended to address the specific dispute between the parties.
Key Components of a Settlement Agreement
All breach of contract settlement agreements contain some common agreement terms. A release clause is typically the first element. In consideration for the payment under the contract, the party who allegedly breached the contract agrees to release the other party (the non breaching party) from any further liability arising from the breach. Typically, the payment is the remaining balance due under the contract.
Another typical provision is entitled attorney’s fees and costs. The prevailing party in a breach of contract action is entitled to attorneys’ fees and costs under California Civil Code section 1717. It is important to include an attorneys’ fees and costs provision in a breach of contract settlement agreement, otherwise, the prevailing party will be forced to pay its own attorneys’ fees in order to enforce the agreement. The attorneys’ fees and costs provision should state that if a party is required to file a breach of contract action to enforce the agreement because another party fails to comply with the terms of the settlement agreement, the non complying party shall pay the prevailing party’s attorneys’ fees and costs of enforcement.
In most cases, settlements of breach of contract disputes require that the parties maintain confidentiality over the final agreement. The confidentiality provision typically will state that the existence of the settlement agreement is confidential and neither party shall disclose the final settlement agreement to any third parties, except to obtain legal or financial advice.
The settlement agreement should then state that failure to comply with all the terms of the settlement agreement shall constitute grounds for enforcement through a breach of contract action.
There may be other elements to the settlement agreement such as a statement of issues in dispute, advertising issues, and a detailed description of the breach of contract.
Negotiating a Settlement Agreement
Although some breach of contract cases end with summary judgement (meaning a Judge decides the case without a trial), the majority of insurance claims disputes are settled for an agreed amount of money (and possibly for other consideration). This is especially true in Texas where insurance companies must bring their lawsuit against you in the county of your residence.
If a lawsuit were filed against you and you lived in Travis County, it would be filed there, regardless of how far away the insurance company was from you. This is so even if the insurance company or its defense counsel calls you daily in an attempt to settle the case so that the case can be tried in Travis County.
The negotiation process for a settlement agreement may be informal, involving only a few phone calls and documents by which the parties and/or their lawyers can agree on the settlement terms, or more formal, involving meetings of the parties and their lawyers, with back-and-forth negotiations and a possible mediator present to broker the final settlement. Lawyers usually handle negotiations on behalf of their clients (both for legal and practical reasons). However, there may come a time in a case when a lawyer cannot perform appropriate legal services for the client for some reason (for example, if a conflict of interest arises during the representation or if the lawyer does something unethical). In such a case, you will still be able to settle your dispute as long as you know the information contained in this and other sections of our blog.
Whatever process is used to negotiate a settlement agreement, there are certain strategies that will make for a more likely, and favorable, outcome. Keep in mind that insurance companies frequently deny valid claims, or make only token offers to try and settle a case early on. Their strategy is to pay out as little as possible in order to maximize profits. For this reason , it is important that you know what you will and will not accept as settlement for your claim. For example, some people know that they will do anything to avoid going to court and being involved in a lawsuit. Others will not settle their case for less than two or three times the amount of the insurance company’s last settlement offer.
Many people are also very busy and do not have time to discuss every issue with their lawyers. Nonetheless, there are certain key pieces of information you will need to decide how and when to approach settlement. First, the settlement process for a breach of contract lawsuit should be driven by your lawyer—not your insurance company. Many insurance employees are not decision-makers and do not have access to those who are. If one person is no longer making settlement decisions for the insurance company, re-direct all communications to someone else at that same office or a different office—but do not change your lawyer just because it appears that one person is putting off a settlement decision. Although there are differences among insurance companies, all of them have similar internal bureaucracies. If your claim appointment was at a Houston office but the adjusting unit is in Austin, you may have difficulty settling the case if the adjusting unit in Austin is not willing to resolve your claim and is distant from the Houston office.
Second, when negotiating a breach of contract settlement agreement, be clear in all communications and decisions. Offer specific terms; don’t be vague. Set specific deadlines. Don’t rely on verbal agreements with your opponent or his/her lawyer. Third, include your lawyer in all communications with the opposing party or their lawyer.
If you are going to take a settlement offer, even orally, then be sure to tell your lawyer. If you want to encourage an opposing party to settle, then be aware that the longer you wait, the better chance it will be that the other party will settle with you.
Enforcing a Settlement Agreement
Enforcing and Complying with a Settlement Agreement
An agreement to settle a dispute is a contract; therefore, enforcing the terms of the settlement agreement after a dispute should be dealt with in accordance with the provisions of the actual settlement agreement. Any terms and/or conditions in the agreement should be complied with as such are legally binding. Assuming the parties did not specifically release future claims against one another for either party’s failure to comply with the terms of the written settlement agreement, then compliance must be by both parties.
One party’s failure to comply with the settlement agreement gives all other parties to the agreement the right to file a legal action based upon the violation of the written settlement document terms. A prevailing party is entitled to collect attorney’s fees unless the settlement agreement specifically excludes the collection of such fees for a prevailing party. When dealing with a settlement agreement, all terms and conditions should be strictly adhered to and followed in order to prevent any costly litigation in the future.
Legal Action if a Settlement Agreement is Not Honored
If an agreement to settle has been breached, the innocent party may have options available other than simply walking into a Court and applying to have a judgment against the breaching party enforced. Those other options include mediation or arbitration, but may also include recourse back to the Court.
The innocent party may "enforce the settlement agreement by motion . . . even after a case has been dismissed." (Derosier v. Design-Mation Corp., 2010 WL 2163054, at *1 (Fla. 5th DCA 2010) (citing Allen v. Wiggins, 780 So.2d 929, 932 (Fla. 4th DCA 2001); see also Fla. R. Civ. P. 1.540(b).) Under the Florida Rules of Civil Procedure, a party may seek relief from an order incorporated in a settlement agreement "to enforce settlement." Fla. R. Civ. P. 1.540(b)(6). In Allen, a party had appealed an order that granted approval of a Stipulation for Dismissal and final judgment, but contained a clause requiring a settlement payment by the appellant. The appellant argued, among other things, that the lack of notice of the settlement provision constituted inadvertence under rule 1.540(b)(1). The court held that the mistake contemplated by rule 1.540(b)(1) was of fact , not law, and that "even assuming it was possible to rule on the issue under 1.540(b)(6), the allegation of mistake negated the parties’ intention to forever exclude any particular provision from the judgment." Allen, 780 So.2d at 933.
Moreover, the Florida Rules of Civil Procedure contemplate specific enforcement proceedings when issues arise in connection with a settlement agreement. For example, under the Florida Uniform Arbitration Act, "a court may appoint a person or the American Arbitration Association as the arbitrator for the parties to the controversy if no method is provided by contract or whenever the agreed-upon method fails or is incapable of being followed." Fla. Stat. § 682.04(1). Further, the Florida Uniform Arbitration Act provides for the "Enforcement of Agreements." Fla. Stat. § 682.11. In fact, under the Florida Statutes and Rules of Civil Procedure, a party’s failure to abide by a settlement agreement constitutes a basis for revocation of "a dismissal entered pursuant to a stipulation for dismissal with prejudice if a party violates the terms of the stipulation." Fla. Stat. § 682.12; Fla. R. Civ. P. 1.730.