Breach Of Contract — What You Need To Know When It Happens

Contracts are an important part of running a business. They help you maintain operations, understand your costs, and create stability in an ever-changing world. But what happens when a supplier, partner, client, landlord, or someone else breaches a contract with you? What should you know about breaches before you take the next action? And where can you find answers quickly so that your business isn't affected?

Here are a few of the most important things to know.

What Is a Breach of Contract?

A breach of contract is any action or inaction which violates the terms of the agreement. 

Breaches, or failures, of a contract generally happen in one of three main ways. The first is when one party fails to perform their part of the agreement on time. This may be as simple as a late delivery. The second is that the party does perform on time, but they don't adhere to the terms. Perhaps they delivered blue widgets instead of green. Finally, the party may simply not perform at all — and you get no widgets.

If you feel that a contract has been breached, the first step is to be certain that you know exactly what is in the contract. If, for instance, the contract stipulates that the widgets be delivered 'on or around' a date, a late delivery may not be a breach. 

Is the Breach Material or Immaterial?

Breaches come in two basic varieties: material and immaterial. The difference is in how much the failure frustrates the essence, or core purpose, of the contract. Material breaches are egregious enough that they cut to the reason you signed the agreement in the first place.

Consider a contract to deliver green widgets to match a large customer order due on Monday. If blue widgets arrive and you can't fulfill your client's order, the failure may be a material breach of contract. This distinction is important, in part, because you may eventually be exempted from having to fulfil your end of the contract — including making a full payment. 

An immaterial breach, though, doesn't cut to the heart of the contract. Maybe you wanted blue widgets but the color isn't a deal-breaker for your client. While the widget company still failed the terms of the agreement, it doesn't negate the entire thing. Even if you're not fully satisfied by their actions, you likely will still have to fulfill the contract's terms on your end.

What Remedy Do You Want?

If the breach is material or large enough to cause financial damage, you'll next need to decide what type of remedy to pursue.

The most common remedy is payment of financial damages after the fact. This is fairly easy to calculate if, for instance, you lost money because you had to cancel the contract with your client when the widgets were late. The order was canceled, you lost the deal, and the damage has been done. In this case, your company would probably determine whether the financial loss is great enough to pursue it through legal action.

Depending on the timing, though, you may be able to secure a change in the contract instead. When you received blue widgets, perhaps the client insisted on paying a lower price for the error. If the order was large and you took a big financial hit, your attorney might negotiate a change to the contract terms to reduce payment for the blue widgets as well. 

What if the widget supplier isn't open to negotiations? If the breach was material, you may be able to sue for a specific remedy. This remedy isn't always financial in nature. The court may order the other party to fulfill their part of the contract. The widget supplier may be ordered to send you a full batch of the correct color. Or, the specific remedy may be an order to cancel the contract, freeing you from paying for the wrong widgets.

If you move quickly enough that it will still make a difference, a court-ordered remedy can help stop your financial losses even before they happen. If they order that the company send the right widgets, perhaps you can still fulfill your client's contract. Or the court may cancel the contract so that you can take that money and find a new widget supplier to meet your needs on time. 

Where Can You Find Help?

If a company has breached a contract with you, now is the time to take the right next steps. No matter whether you've already incurred financial losses or you can still make things right in other ways, your best resource is a qualified civil lawyer. 

Hart Law Offices, P.C., is ready to help Idaho residents with all their civil law needs. We'll work with you to identify the type of breach you're experiencing, how it may financially damage your business, and which remedies will work best in your situation. Call today to get started.