Basic contract formation requires an offer, and acceptance of that offer, mutual assent to terms, intent to be bound by those terms, and some measure of consideration (i.e., benefit to the promisor, or a detriment to the promisee). Gratuitous acts and existing legal obligations do not qualify as considerations. The major defenses parties assert against enforcement of a contract include unconscionability, fraud, mistake, and economic duress. Fraud can be in the inducement or in the factum (i.e., when a person is misled into signing a document without knowing or understanding its nature, contents, or consequences). Based upon these types of defenses to enforcement of a contract, a plaintiff may elect to rescind the contract or may elect to have the court reform the contract (i.e., restating intended terms or clarify intent where lacking in the contract).
At variance with defenses to enforcement are the various ways parties can breach contracts. Breaches may be anticipatory, based upon a party’s failure to perform or delay in performance, or breaching the implied covenant in all contracts of good faith and fair dealing. Generally, when a party breaches the contract, the non-breaching party must notice the breaching party of its breach in order not to waive the breach while the parties continue under the contract. Even with notification made, however, the non-breaching party is not allowed to terminate the contract based upon the noticed breach by the other party. Breaching parties often assert defenses for their failure to perform under the contract, such as, performance is impossible, the other party has engaged in conduct that frustrated the breaching party’s ability to perform, waiver, the other party’s breach, a condition precedent to the breaching party’s performance failed to occur, and force majeure clauses.
Damages from breach of contract differ significantly from those that attach to the enforcement defenses. Breach of contract damages may be expectancy damages (direct or consequential), lost profits, reliance damages (as an alternative to expectancy damages, i.e., what would the non-breaching party have gained had its counterparty performed), restitution, nominal and liquidated damages, and in certain instances, compelling the breaching party to perform the contract, and in rare instances, punitive damages. In New York, the non-breaching party’s failure to mitigate its damages will result in an inability to recover for losses that might have been prevented through the non-breaching party’s reasonable efforts and expenditures.