BREACH OF CONTRACT
In Nevada, the elements for a claim of breach of contract are:
- Valid contract (offer, acceptance, consideration) exists between plaintiff and defendant;
- Defendant breached the contract or failed to render performance when it became due;
- Defendant’s breach or failure of performance was unexcused;
- All conditions precedent to defendant’s duty to perform were fulfilled by plaintiff or were excused;
- Plaintiff was damaged by the breach;
- Causation and damages were a forseeable consequence of a particular breach (causation is an essential element of liability).
Cohen-Breen v. Gray Tel. Grp., Inc., 661 F. Supp. 2d 1158, 1171 (D. Nev. 2009); Brown v. Kinross Gold U.S.A., Inc., 531 F. Supp. 2d 1234, 1240 (D. Nev. 2008); Saini v. Int’l Game Tech., 434 F. Supp. 2d 913, 919–20 (D. Nev. 2006); Clark Cnty. School Dist. v. Richardson Constr., Inc., 123 Nev. 382, 168 P.3d 87 (2007); May v. Anderson, 19 P.3d 1254, 1257 (Nev. 2005); Colorado Structures, Inc. v. Ins. Co. of the West, 106 P.3d 815, 820 (Wash. Ct. App. 2005); Nevada v. Sutton, 2004 WL 2984272 (Nev.); Wiz Tech., Inc. v. Coopers & Lybrand, LLP, 106 Cal. App. 4th 1, 130 Cal. Rptr.2d 263 (2003); D’Angelo v. Gardner, 107 Nev. 704 (1991); Gramanz v. T-Shirts and Souvenirs, 111 Nev. 478, 894 P.2d 342 (1995); Bernard v. Rockhill Dev. Co., 103 Nev. 132, 135, 734 P.2d 1238, 1240 (1987); Shetakis Distr. Co., Inc. v. Centel Commc’n Co., 104 Nev. 258, 756 P.2d 186 (1988); R&S Inv. v. Howard, 95 Nev. 279, 282; 593 P.2d 53, 55 (1979); Roth v. Scott, 112 Nev. 1078 (1966); Acoustics, Inc. v. Trepte Constr. Co., 14 Cal.App.3d 887, 92 Cal.Rptr.723 (1971); Reichert v. Gen. Ins. Co. of Am., 442 P.2d 337, 381 (1968); Amen v. Mercede Cnty. Title Co., 58 Cal. 2d 528 (1962); Rianda v. Sand Benito Title Guar. Co., 35 Cal. 2d 170 (1950); Dachner v. Union Lead Mining and Smelter Co., 65 Nev. 313 (1948). Restatement (Second) of Contracts , §§1, 9, 17, 71, 224, 235, 346 (1981), 17 Am. Jur. 2d Contracts, §10, 361, 445 (1964).
Generally, a contract is an agreement or creation of a duty between two or more parties, with mutual assent and sufficient legal consideration, which the law can provide a remedy in case of breach. Restatement (Second) of Contracts § 1-8 (1981). This section will address the enforceability of a contract, calculation of damages, and successful remedies.
The Enforceable Contract
In order to establish a claim of breach of contract, the plaintiff must show four elements: (1) formation of an enforceable contract; (2) plaintiff’s performance (or excuse of the performance); (3) defendant’s material breach; and (4) resulting damages. See Keife v. Metro. Life Ins. Co., 797 F. Supp. 2d 1072, 1076 (D. Nev. 2011); Laguerre v. Nev. Sys. of Higher Educ., 2011 WL 3444202 (D. Nev.); Impact Mktg. Int’l LLC v. Big O Tires, LLC, 2012 WL 359914 (D. Nev. 2012); Calloway v. Reno, 116 Nev. 250, 993 P.2d 1259 (2000); Chamani v. Mackay, 124 Nev. 1457, 238 P.3d 800 (Table), 2008 WL 6101956 (Nev. 2008); 17B C.J.S. Contracts § 824 (2011). Without a valid and enforceable contract under law, one cannot establish a claim for breach of a contract. “A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.” Restatement (Second) of Contracts § 1 (1981). There are many essential elements to a valid and enforceable contract, such as, “an offer and acceptance, meeting of the minds, and consideration;” adherence to the statute of frauds; express and implied terms of a contract; and legal capacities of parties. May v. Anderson, 119 P.3d 1254, 1257, 121 Nev. 668, 672 (2005); see David G. Epstein, Bruce A. Markell & Lawrence Ponoroff, Making and Doing Deals: Contracts in Context (2d ed., Lexis 2006). For the focus of this material, the element of the “meeting of the minds” is most noteworthy because it directs courts to the contract’s material terms.
In May v. Anderson, the court held that the parties’ settlement agreement was a valid contract, even with a party’s refusal to sign the agreement, because essential terms of a release, which was material to the agreement, was agreed upon in advance. May v. Anderson, 119 P.3d at 1259. The court decided that agreeing to the terms of release, which was material to the agreement, was enough to prove that there was a valid contract with the “meeting of the minds,” with or without the party’s signature of agreement. Id.
Of course, one may only enforce a contract if one is himself in compliance with the contract. A plaintiff can claim breach of contract only after fulfilling his or her duties and obligations unless there is an excuse to the performance. “If there is anything well settled, it is that the party who commits the first breach of the contract cannot maintain an action against the other for a subsequent failure to perform.” Bradley v. Nev.-Cal.-Or. Ry., 178 P. 906, 908 (1919). “Full performance of a duty under a contract discharges the duty.” Restatement (Second) of Contracts § 235 (1981). In order for the plaintiff to raise a claim, he or she must fulfill “nothing less than full performance.” Id. at § 235cmt. a (1981).
Nevertheless, a plaintiff has some valid excuses for nonperformance. See David G. Epstein, Bruce A. Markell & Lawrence Ponoroff, Making and Doing Deals: Contracts in Context ch. 5 (2d ed., Lexis 2006) (Generally, there are four categories: “(1) Non-occurrence of conditions: something that has to happen after the contract has not yet happened; (2) Amendment, modification, waiver, or estoppel: through later words or conduct, both parties to a contract agree to change the contractor or give up rights under the contract; (3) Impossibility, impracticability, frustration of purpose: something unanticipated happens after the contract that significantly affects the performance of the contract; (4) Repudiation: post-contract statement or conduct by one of the parties after the contract unambiguously indicating her unwillingness or inability to do what she agreed to do). In Bradley v. Nev.-Cal.-Or. Ry., the Court rejected the trial court’s opinion that plaintiff’s failure to abide by the defendant’s request to build two miles of fence prohibited the plaintiff from establishing the breach. The Supreme Court rejected this opinion because the contract was a “mutual, interdependent covenant” that required the defendant’s furnishing of all necessary materials before the plaintiff’s performance. Bradley, 178 P. at 908.
The Court held that plaintiff could establish breach because the defendant “prevent[ed] the performance of the contract without fault of the [plaintiff], who [was] willing and able to perform.” Id. “Generally, when one party prevents performance of a contractual duty, the other party is excused from performing.” Chamani, 124 Nev. 1457. Nevada courts have held that one party’s material breach excuses the other party’s further performance under the contract. See Young Elec. Sign Co. v. Fohrman, 86 Nev. 185, 466 P.2d 846 (1970); Crockett & Myers, Ltd. v. Napier, Fitzgerald & Kirby, LLP, 440 F. Supp. 2d 1184 (D. Nev. 2006).
The Defendant’s nonperformance, which is the crux of a breach of contract claim, must lead to a “material breach” of the contract. A “material breach” is the nonperformance of a fundamental or essential aspect of a contract that defeats the original object of the parties to the contract. See 23 Williston on Contracts § 63:3 (4th ed.); Indep. Lead Mines v. Hecla Mining Co., 143 Idaho 22, 137 P.3d 409 (2006). In Keife v. Metro. Life Ins. Co., the court held that a contract stating that the plaintiff will receive “death benefits (1) immediately, and (2) in one sum” was materially breached although the defendant “credit[ed] [plaintiff] a TCA in which he could, at any time, write checks for any amount including the full amount of the account.” Keife v. Metro. Life Ins. Co., 797 F. Supp. 2d 1072, 1077 (D. Nev. 2011). The court reasoned that payments could not be “immediate” because defendant still “maintained possession and control of the funds” because it was still in the “general operating account [of the defendant] and [defendant] has the use of those funds for its own benefit.” Id.
In Goldston v. AMI Inv., Inc., the court held that a failure to remove the fence was a material breach and a repudiation of the contract because payment was conditioned upon the removal of the fence. Goldston v. AMI Inv., Inc., 98 Nev. 567, 570, 655 P.2d 521, 523 (1982). Failure to tender timely performance can constitute a material breach when the contract specifies that ‘time is of the essence’ and both parties are obliged to follow a specified time. Id. Contractual obligations that go to the root or essence of the agreement are what the courts look for when determining material breach. If either one of the parties cannot accomplish the same purpose it had bargained for at the formation of the contract, there has been a material breach to the contract.
Remedies for Contract Damages
“An essential element of a breach of contract claim is a showing that defendant’s alleged breach caused damages to the plaintiff.” Keife v. Metro. Life Ins. Co., 797 F. Supp. 2d at 1077 (quoting Saini v. Int’l Game Tech., 434 F. Supp. 2d 913, 919-920 (D. Nev. 2006)). By awarding damages to the injured plaintiff, the court is enforcing what is proper under the contract. Restatement (Second) of Contracts states:
(1)The injured party has a right to damages for any breach by a party against whom the contract is enforceable unless the claim for damages has been suspended or discharged.
(2) If the breach caused no loss or if the amount of the loss is not proved under the rules stated in this Chapter, a small sum fixed without regard to the amount of loss will be awarded as nominal damages.
Restatement (Second) of Contracts § 346 (1981). The law provides a remedy for the breach of a valid contract.
Expectation Damages
Expectation damages awards the plaintiff the difference between the value of the benefit reasonably expected as a result of the defendant’s agreed performance and the value she actually received (a.k.a., benefit of the bargain damages). The plaintiff is basically put into the position he or she would have been in had the defendant fully performed. Dalton Props., Inc. v. Jones, 683 P.2d 30, 31 (Nev. 1984).
Restitutionary Damages
Restitutionary damages restore to the plaintiff the goods he or she provided the defendant, the fair market value of the services he or she rendered for the benefit of the defendant, or otherwise require the defendant to disgorge any benefit received on account of the contract, in order to prevent the defendant’s unjust enrichment. This puts the defendant in the position he or she would have been in had the plaintiff never come along.
The general goal of contract damages is to provide compensation for the injured party based on the injured party’s expectation interest. 3 D. Dobbs, Law of Remedies § 12.2(1) at 22 (2d ed., 1993); Restatement (Second) of Contracts § 347 (1981). More specifically, it gives the injured party the “benefit of his bargain by awarding him a sum of money that will, to the extent possible, put him in as good a position as he would have been in had the contract been performed,” and no better. See Colo. Env., Inc. v. Valley Grading Corp., 105 Nev. 464, 470; 779 P.2d 80, 84 (1989); Dalton Prop., Inc. v. Jones, 100 Nev. 422, 424, 683 P.2d 30, 31 (1984); Restatement (Second) of Contracts § 347 cmt. a. (1981).
The Nevada Supreme Court has adopted the Restatement (Second) of Contracts § 347 for determining the proper method of calculating general expectancy damages. Colorado Env., 105 Nev. at 470-71. The Restatement (Second) of Contracts § 347 states:
Subject to the limitations stated in §§ 50-53, the injured party has a right to damages based on his expectation interest as measured by (a) the loss in the value to him of the other party’s performance caused by its failure or deficiency, (b) any other loss, including incidental or consequential loss, caused by the breach, less (c) any cost or other loss that he has avoided not by having to perform.
Restatement (Second) of Contracts § 347 (1981). However, these guidelines are very broad in nature. Thus, courts have used a more practical application of the rules by using: (a) The Market Value Measure; and (b) The Cost Expectancy (Cost- of- substitute- performance) Measure. See Dobbs, § 12.2(2) at 28.
Market Value Measure
Generally, the market value measure “allows the breach victim to recover the market value of the very performance he should have had, less the contract price.” Id. “[T]he measure of damage is the difference between the contract price and the market price of the goods at the time and place when the contract should have been performed.” Turner Lumber Co. v. Tonopah Lumber Co., 38 Nev. 338, 339, 153 P. 254, 255 (1915). Nevada has applied the market value measure to contracts involving the sale of real estate and the sale of goods. See generally Turner Lumber Co., 38 Nev. 338; J.J. Indus., LLC v. Bennett, 119 Nev. 269, 71 P.3d 1264 (2003); Regent Int’l v. Lear, 103 Nev. 33, 732 P.2d 861 (1987); Harris v. Shell Dev. Corp., 95 Nev. 348, 594 P.2d 731 (1979).
Cost Expectancy Measure
Generally, the cost expectancy measure allows an injured party to recover damages constituting the costs of obtaining reasonable substitute performance. The cost expectancy measure will usually be permitted only if it yields an amount less than the market value measure. See Dobbs, § 12.2(2) at 30-35 (“Cost of substitute performance must be justified on the ground that it is less than the market measure, or that it is likely to provide an accurate measure of the expectancy”).
There are essentially two general situations where the cost expectancy measure is applied under Nevada law: (i) where the performing/ servicing party is prevented from completing its performance; and (ii) where the performing/ servicing party fails to complete its performance. Fuller v. United. Elec. Co., 70 Nev. 448, 451-52, 273 P.2d 136, 137 (1954); Bradley v. Nev.-Cal.-Or. Ry., 178 P. 906, 908 (Nev.1919); Cheyenne Constr., Inc. v. Hozz, 102 Nev. 308, 312-13, 720 P.2d 1224, 1227 (1986); Kirkpatrick v. Temme, 98 Nev. 523, 654 P.2d 1011 (1982); see also Cheyenne Constr., Inc., 102 Nev. at 312, (simultaneously awarding damages to both a contractor who was prevented from performing, and a property owner for the cost of completion where that same contractor failed to complete the performance).
Besides two different measures, there are two major types of expectancy damages: (a) general damages; and (b) special damages. Although it is categorized separately, a plaintiff can recover both types in the same case as long as no double recovery results for the injured party. See Dobbs, § 12.2(2) at 38-39.
General Damages
General damages have been described as the “present value of the thing promised,” or the “value of the very performance contracted for.” Id. Nevada has formulated a very broad definition of general damages, including damages which ordinarily flow from a breach. In Bradley, the Court held that even a small loss of profit is considered a general damage where the loss is a “direct and natural result which the law will presume to follow from the breach of contract.” Bradley, 179 P. at 909. The Supreme Court of Nevada also held in Eaton v. J.H. Inc. that lost profits are generally an appropriate measure of damages where a party is prevented from performing according to the full terms of the contract. Eaton v. J.H. Inc., 94 Nev. 446, 450, 581 P.2d 14 (1978).
Special Damages
Unlike general damages, special or consequential damages are not based on the value of the promised performance, but on the “benefits [the performance] can produce or the losses that may be caused by [the performance’s] absence.” See Dobbs, § 12.2(3) at 40. In Harris v. Shell Dev. Corp. Nev., Inc., the Court held that “out-of-pocket” expenses associated with the sale of real estate are recoverable as consequential damages, even if no general damages are awarded. Harris v. Shell Dev. Corp. Nev., Inc., 594 P.2d at 733-34.
Reliance Damages
Reliance damages reimburse the plaintiff for any costs – monetary or otherwise – that plaintiff incurred in preparing to perform or performing her part of the contract (out-of-pocket damages). This puts the plaintiff in the position she would have been in had she never contracted with the defendant. It is generally established that where there is a breach of a valid contract, the injured party may seek reliance expenses or losses as an alternative to expectancy damages. See Dobbs, § 12.2(1) at 50; Restatement (Second) of Contracts § 349. Reliance damages include “expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.” Restatement (Second) of Contracts § 349. However, recovery under reliance damages theory may not exceed the full contract price. Id. at cmt. a. Further, reliance damages may not exceed what would be awarded as expectancy damages. See Dobbs, supra, § 12.2(2) at 56. Recovery for reliance loss is based on net reliance loss; therefore, any benefit the injured party gains in reliance is credited to the defendant’s liability. Id.
Although Nevada law on reliance damages is limited, Perry v. Jordan provides some insight. There, the breaching party sold her clothing store to plaintiff and entered into a management contract whereby breaching party agreed to continue managing the clothing store for one year, train her replacement, and receive a salary of $5,000 per month. Perry v. Jordan, 111 Nev. 943, 900 P.2d 335, 337 (1995). After six months, the breaching party abandoned the store, leaving the plaintiff to operate at a loss and eventually close the store. Plaintiff requested and the court awarded reliance damages along with the return of the $5,000 per month received by the breaching party. Id. at 338.
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