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Business Owners’ Guide to Contract Breaches

Business Owners’ Guide to Contract Breaches

For anyone that enters a legally binding agreement, there is always going to be the risk of a breach of contract.

For business owners, you will likely be dealing with great volumes of legal agreements every week. From customer and vendor deals to construction and employment contracts, the chance you will one day have to deal with a breach is magnified greatly.

No matter the relationship of the parties involved sometimes you just cannot stop problems from arising, therefore, it is always best to be prepared. If you already find yourself fighting a contract breach, then it may be best to find a breach of contract lawyer, otherwise, check out our guide to arm yourself for the future.

The Four Types of Breach of Contract

  • Material Breach: A material breach occurs when one party receives a significantly lesser or different result than what was stipulated in a contract. This could involve failure to perform the obligations laid out in a contract, for example, a builder using cheaper, lower-quality materials than what they had agreed to.
  • Anticipatory Breach: In the case of an anticipatory breach, a breach of contract has not yet occurred, but one of the parties have indicated that they will not fulfill their contractual obligations. This can mean one party has explicitly told the other they will not be able to deliver, or it can be inferred based on the parties’ actions.
  • Minor Breach: A minor breach of contract refers to a situation where the deliverable of a contract was ultimately obtained by the receiving party, but some part of the contractual obligation was not fulfilled. In minor instances, such as late delivery, it may be up to the receiving party to prove that the breach resulted in financial loss.
  • Actual Breach: An actual breach of contract refers to a breach that has already occurred, which means the breaching party has either refused to fulfill their obligations by the due date or they have performed their duties improperly or incompletely.

Risk Reduction

The best way to reduce the risk of a breach of contract is to not only hire the most reputable contractors, but to ensure that contracts and agreements are drafted to the highest possible standard and that all parties involved are fully aware of their contractual responsibilities via a clear and thorough handover process.

Actively monitoring contractual performance is generally the best practice for ensuring that parties are performing their contractual duties. A monitoring plan, with metrics and milestones for work, will help you spot the warning signs and contain potential problems before they become actionable breaches.

Remedying a Breach

In the event of a breach of contract dispute arising, it is important to weigh the merits of your case.

Ensure there is a provable contract in place for both parties, a verbal contract, for example, can be extremely difficult to prove in court.

Gather evidence of the breach. You will need to be able to show how the obligations stipulated in a contract have not been met by the other party. You will also need to be able to prove the financial loss this has brought upon you.

Finally, consider the relationships of you and the involved party, and whether the costs of a court proceeding will outweigh the damages incurred. If you have an ongoing relationship with the breaching party, or the financial cost of the breach is not significant, it may be best to seek negotiations before proceeding to litigation.

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by Dirk DeBie // Contributor to Businessing Magazine.

Opinions expressed by contributors are their own.