What Happens Next If a Party Breaches a Business Contract?
If you own a business or are thinking about starting one, using contracts is a great way to protect you and your business. Contracts go hand in hand with maintaining strong, mutually-beneficial relationships with the key stakeholders that keep your business alive. This includes, customers, partners, vendors, and others who work alongside your business. However, simply having a contract does not guarantee a relationship will stay positive. In fact, sometimes relationships sour and a business party you have a contract with may breach that contract.
The first thing to do is to not panic and remember that the entire reason you have contracts is for this very situation. Your best bet is to contact a trusted business attorney who can help you examine the particulars of your situation and advise on the best legal option, because you have a few depending on the nature of the breach.
Possible Legal Responses to a Breach of Business Contract
Every business contract is somewhat different. Therefore, the nature of the breach and the appropriate legal response varies. This list is just a brief discussion to help you better understand. The best thing you can do, again, is to consult a reliable business attorney as soon as possible to help you pursue one of the following or even a different course of legal action in response to a breach of contract:
Payment of Damages
In many contracts, a breach will result in a financial loss for the non-breaching party. Typically, there are three damages a court may award to recover damages:
- Punitive (payment used to punish the party in breach)
- Compensatory (payment used to cover losses the breach caused on the non-breaching party)
- Liquidated (if stipulated within a relevant contractual clause)
- Restitution (an order to pay back money to the non-breaching party)
Performance of Duty
In some cases, the appropriate remedy prescribed by the court is the completion of contractual duties. For example, if you signed a contract for the purchase of real property, the court could order a breaching seller to complete the purchase and sale on the terms specified in the contract. Since real estate is unique, monetary damages may not be enough to remedy the failure of the seller to complete the transaction.
This is a common solution when money is inadequate or there is something unique about the contractually obligated actions.
Cancellation of the Contract
In many cases, this may be the most desirable outcome for the non-breaching party. For instance, where a supplier of parts has breached its contract to supply those parts, specific performance may not be desirable due to lack of confidence in the parts supplied under compelled performance, financial standing of the supplier or for other reasons.
The best thing you can do to protect your business is sit down with your attorney and read over any contract before you can sign it. But there are many more things a business attorney can do besides just this. If you have any additional questions about contracts or how to handle a breach in one, call Stephen Rizzieri at 214.434.1017 or fill out the form on our site today.