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How to Handle Breach of Contract within Your Business

— September 16, 2020

You shouldn’t have to bear the burden of a contract breach alone. In case you cannot agree on how to get compensated by the breaching party, taking the issue to court could be the best option.

In a perfect world, all parties could honor the contracts they sign. You could always trust that the other party will offer you services or products as outlined in the contract. Sadly, today’s world is imperfect. Business partners and vendors can breach your contract with them for a variety of reasons, from natural disasters to negligence.

Regardless of what leads to the breach of your contract, you could have to suffer from it. While some breaches result in monetary loss, others could damage your reputation and even increase customer churn rates. If you feel that your business needs compensation for the breach of your contract, consider suing the party at fault.

Here is what you should know when suing the other party:

What is a Breach of Contract?

Whenever businesses sign a contract, they agree on a set of rules, which are outlined in the contract. Legally, if any of the involved parties fail to meet their contractual obligations, they will be considered to have breached the contract. Breaches occur if one party completely fails to attend to their duty, fails to perform the duty on time, or simply fails to follow the contractual agreements when attending to their duty.

Contract breaches are categorized into material breaches and immaterial breaches. While the former leads to easy-to-identify damages, the latter doesn’t, but the breach of the contract is still an issue for either party. Before deciding to hire a lawyer to sue the breaching party, you should verify that:

  • There was an existing contract
  • The existing contract was broken
  • You lost money or business opportunities
  • The party in breach of the contract was responsible for your losses

How a Contract Breach Could Affect Your Business

Contract breaches, when taken to court, tend to be costly and time-consuming for all parties involved. However, not all breaches are created equal, and they can be divided into four categories. Figuring out how the breach you are tackling should be classified is essential. Here are the four categories:

Ferrellgas Claims DLA Piper Breached Contract
Photo by Richard Dykes on Unsplash
  1. Material breaches – these breaches arise from any of the involved parties failing to perform their duties, and it is considered a serious offense. If you are in this situation, seeking damages in court is possible.
  2. Fundamental breaches – as a breach that often appears in court, a fundamental breach could allow you to stop the contract performance before suing for damages. For instance, if you lease a piece of property and find another tenant using it on the moving day, you can sue the owner for any damages, and even put an end to the existing contract.
  3. Anticipatory breaches – if you think that the other party might not fulfill their end of the bargain within the stipulated time, you can end the contract on the basis of anticipation. This allows you to avoid any losses. For instance, you can end a contract with a contractor who starts working on your project at a time when they can’t finish by the target date.
  4. Minor breaches – these occur in situations where the other party fulfills the contract, but not to your satisfaction. For instance, you could hire a website developer to construct your business site. If they do so, but leave a few errors, you can sue them for the monetary damages or get them to make the necessary corrections.

How Contract Breaches are Remediated

You are entitled to some form of compensation/ relief for the breach of a contract under the law. You can either be remediated through the payment of damages, cancellation and restitution, and specific performance.

  1. Compensation through Payment for Damages

Payment for damages is the most common remedy for contract breaches. The at-fault party can be required to pay compensatory damages to place you back to the position you would have been had the breach not occurred. This means paying for lawyer fees, injuries, and even lost business.

If the court finds that the other party caused severe damages, it might require them to pay punitive damages. This form of compensation is meant to punish the at-fault party and could require them to pay more than what you lost.

If you had listed down possible damages in your contract and the reasonable compensation for them, the at-breach party will have to pay for these damages if the breach leads to them (these are commonly known as liquidated damages). The at-fault party will only need to pay for nominal damages if the breach resulted in little to no monetary loss for your business.

  1. Compensation through Specific Performance

If monetary compensation might not be enough as a remedy for your situation, you should consider the alternative of specific performance. This will require you to get a court-mandated order forcing the other party to perform a specific duty.

  1. Compensation through Cancellation and Restitution

Restitution will require the breaching party to place you back into the position you were before the breach while cancellation voids the contract, relieving all parties of any contractual obligation.

You shouldn’t have to bear the burden of a contract breach alone. In case you cannot agree on how to get compensated by the breaching party, taking the issue to court could be the best option. Be sure to hire the right lawyer to navigate the legal process with ease. 

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