How Does a Contract Breach Impact a Business?

How Does a Contract Breach Impact a Business?When you are trying to run a tight ship with your business, one of the most important things keeping it going are contractual agreements. Making sure that everyone you have a contract with is following the terms included within it much like you are important, and even one person failing to comply with this can gum up the works. Contract breaches come in different shapes and sizes, with some being more serious than others, but none of them are a sight for sore eyes. However, what can a contract breach do to impact a business?

How a contract breach impacts a business

A breach of contract refers to, basically, one party involved in the contract failing to uphold their half of the bargain. This is sometimes due to simply not wishing to fulfill their end. Inevitably, you are going to find yourself engaging in a business contract at some point or another where the other party is ultimately dissatisfied with after they have agreed to abide by it. Whether they agreed to it due to having no other option or if they simply were not paying attention is irrelevant to this. However, the important thing to take away from this article is that a lot of people are breaching contracts in spite of their best efforts. Life happens, sometimes, and as a result, things may change. Timeframes may no longer be doable, the output of a product or service may have to be limited compared to what was offered, etc. Despite the fact that their inability to provide the services and/or products they were entitled to, it is at least not through disregard for you and your business. However, that does not reduce the impact of this breach of contract.

There are different avenues that can be taken to deal with a breach of contract. One example, if you are willing to attempt, is to simply try to renegotiate the contract, in the event that you still trust them to get the work done under different circumstances. You may also negotiate a contract that allows them more time to fulfill their obligations if time was an issue, while also having them do extra work as compensation for you lacking their products and/or services they were originally promising to deliver in the old timeframe. Yet, if you decided you did not want to work with this person, that would be entirely understandable. If you want to keep your business’ momentum, you have to ensure that the people who you are working with are helping with that. At this point, you may be inclined to inform them of your attempt to recoup the losses you incurred from them not fulfilling the duties they were contractually obligated to complete.

There are two kinds of breaches that may occur. The first is called an immaterial breach, which refers to a breach of contract that does not impact you. For example, if you were promised a delivery to arrive before noon, and it arrived at 1 pm, that would technically be considered a breach. However, unless it can be shown that the item being late caused you to lose money, you would not be able to seek damages against the other party. However, the way that the contract is written has the capacity to change things quite a bit. If you word the contract to clarify that the item cannot, under any circumstances, arrive after noon, you do not need to demonstrate the damages you incurred, as the urgency detailed in the contract made the damages for late delivery assumed. In this case, it would be considered a material breach: a breach that affects you negatively.

If a breach occurs, and you need to receive recompense, there are two things to consider: whether it is worth the time and financial investment to have the breach cured, and whether the breach actually constitutes a material breach or not. Furthermore, you may have to consider which avenue you want to take with your case. You can go to court with it as many do, but you may also present it before an arbitration forum or a mediator. Of course, it may not have to come to that if you are able to agree to a settlement that helps make you whole.

Types of damages

There are various damages that may be awarded to you for the material breach, depending on the various circumstances involved in the case. The main damages, and the most common one, are called compensatory damages. Essentially, the goal of compensatory damages is to ensure that the non-breaching party gets the equivalent of what they should have received had the contractual obligations been fulfilled by the other party. The next kind of damages are called punitive damages. The point of punitive damages is, as the name implies, to punish the offending party, and communicate to them that such behavior would see similar punishments if they engaged with it in the future. It may also be applied in the event that the offending party has a history of breaching business contracts. In order for a breaching party to be slapped with punitive damages, you must show that their behavior constituted gross negligence or malice. Basically, particularly egregious behavior has to be engaged in as part of the breach in order for punitive damages to be applied. However, punitive damages are significantly less common due to the nature of how they are determined. Indeed, you are not likely to see such damages awarded to you through any means.

Next, we look at nominal damages. Nominal damages are damages awarded to you as token damages, meaning that it is markedly smaller than other damages. They are awarded in response to an immaterial breach, where no evidence of damage to the business, financial damage included, can be proven to have occurred. Finally, liquidated damages may also be involved, which are damages that both parties agreed to as part of the contract, in the event that a breach of contract occurred. These damages should not be punitive in and of themselves and are mainly set up to serve as recompense if one side fails to hold up their end of the bargain.

However, there may be certain situations where financial damages are not adequate to properly compensate you. As a result, the contract reacher may be expected to participate in an alternative form of remedy called specific performance. This remedy may be employed in the event that the breaching party was providing a service or product that is so rare or unique that financial payment is not adequate to make the non-breaching party as whole as they would be had the contract been fulfilled. You may also have to deal with a situation where the other party has already benefited from the contract in some way or another. As a result, seeking recompense for what the breaching party has failed to provide you is not enough. You should also seek restitution for the benefits you have conferred to the breaching party.

How to best seek compensation for a breach of contract

Dealing with a breach of contract dispute may well be a difficult and frustrating process. In order for you to get the best result possible out of a claim against a breaching party, you should consult with a Houston business lawyer, who will look at your case to see how strong a claim you have. Once they have verified that your case is good to go, they will pursue your compensation diligently and helping you figure out which avenue is the best fit for you and your business. For example, some situations may call for you to take it to court, while others may justify seeking recompense through other means.

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