Breach of Contract? What Your Business Needs to Know

Customers are the backbone of any successful business, so when it comes to contractual agreements, most people are happy to enter into one. After all, contracts protect both the customers and the business.

Unfortunately, even with a contract in place, it’s not uncommon for customers to completely disregard the contractual terms and breach contract. If this happens, the repercussions can range from a minor annoyance to near financial ruin.

Here’s what your business needs to know about contract breaching.

What Does It Mean to Breach a Contract?

 

A contract breach is when one of the signing parties doesn’t adhere to the stipulations set forth in the contract. This means that the other party is now within their legal right to take the case to court. Now, the type of breach depends on what was written on the contract.

Here’s an example of a contract breach:

Let’s say you were selling something like health insurance, and the person you sold it to had an accident or complication of sorts. If the insurance covers their medical expenses, yet you fail to do so, this is a breach in the contract. This is an example of when a business breaches their contract.

Another example could be giving someone a payment plan for a product where they have to pay a set amount every month. However, the payment plan is broken and the business is left holding in arrears. While late payments are something a business wants, it’s better than none at all. Without payment, the customer has breached their contract.

How Breach of Contact Impacts Business

In addition to a solid customer base, a successful business needs predictable results. While a business owner can’t see into the future and determine how many customers they will have, they can make predictions about their projected ROI.

They analyze both current and future economic conditions to create a strong business model. It’s those predictions in which a business enters into a contractual agreement with another party. Regardless of the business sector, if one or more parties breach a contract, it can bring a business to a grinding halt. 

The Coronavirus has obviously impacted many companies operations and affected their contracts. Whether they were truly unable to do so and the epidemic  was a  force majeure would be up to a court to determine.

What You Can Do

 

Breach of contract, albeit by a customer or another business entity needs to be rectified immediately. And while most business owners do try to work things out on their own, in efforts to come to a peaceful resolution, it’s not always possible. Unfortunately, there are many cases in which legal action is necessary.

However, simply suing the individual or other business may not solve the problem. Even during the legal proceedings, the business is still operating, which means you need to act swiftly. If the breach of contract was done by a customer, then forwarding the account to collections and asking for reimbursement is an option.

Suing a business for breach of contract requires a different course of action. As a business, you can ask the judge to award your business liquidated damages, in addition to ordering the other party to comply with the contract they signed.

A business can also request the judge award them the following type of compensation for breach of contract:

  • Compensatory reimbursement: This form of monetary compensation will cover all financial losses that can be proven or even possibly occur due to breach of contract.
  • Incidental damages: This type of compensation covers possible losses in the future that are a direct result of the breach of contract.

Note, there are other types of compensation a business can request, however, they do specifically depend on the type of contract, mechanism of breach and where the business or customer is located.

The Takeaway

When it comes to breach of contract, time is of the essence. Business owners can try to negotiate other terms and avoid going to court, however, this isn’t always feasible. Play it safe and work with an experienced attorney who can work to get both you and your business what was set forth in the contract.

Alex Hamilton