Breach of Contract: What Business Owners Need to Know

Understanding exactly what a breach of contract involves is paramount for business owners. Contracts form the backbone of business operations, outlining obligations and expectations of the parties. When a breach occurs, it can disrupt your business, potentially causing significant financial and reputational damage. Here’s what you need to know about the different types of breach of contract, potential consequences, and how to avoid them.

What Makes a Contract Valid?

There are various types of contracts, each designed to serve a specific purpose. Some common examples include sales contracts, employment contracts, lease agreements, and service contracts. Regardless of their nature, all contracts must meet certain legal requirements to be considered valid and enforceable. For a contract to be formed, there must be:

• an offer
• acceptance of that offer
• consideration (something of value exchanged)
• an intention to create legal relations.

The parties involved must also have the legal capacity to enter into the contract, and the agreement must not involve any illegal activities.

Types of Breach of Contract

A breach of contract occurs when one party fails to fulfill their obligations under the terms of the agreement. This can take various forms, including:

• failure to deliver goods or services
• failure to make payments
• violating specific clauses within the contract

However, not all breaches are created equal. For example, a material breach is a significant violation that goes to the heart of the contract, while an immaterial breach is a minor violation that does not substantially impair the purpose of the agreement.

What Are Legal Remedies for Breach of Contract?

One of the most common remedies for breach of contract is the award of damages. These are monetary compensations paid by the breaching party to the non-breaching party to cover any losses or damages incurred as a result of the breach. There are different types of damages, such as:

Compensatory Damages

Compensatory damages aim to put the non-breaching party in the position they would have been in if the breach had not occurred. This can cover direct losses and costs incurred.

Consequential Damages

These damages cover indirect but foreseeable losses caused by the breach. They go beyond the immediate contract scope and address broader impacts.

Other Legal Remedies

Aside from damages, there are other types of legal remedies that may be ordered after a breach of contract. For example, the court could order specific performance, which means that the breaching party must fulfill their contractual obligations. This is often used when monetary compensation is inadequate.

Rescission could also be ordered, which cancels the contract, while restitution returns the non-breaching party to their pre-contract position. This often involves repayment of funds or return of property.

How Can Breach of Contract Be Prevented?

You can prevent breaches by having a well-drafted contract with explicit terms and conditions. This can prevent misunderstandings and provide clarity about obligations, deadlines, and expectations. In addition, maintaining open communication between parties helps keep everyone on the same page, addressing potential issues before they escalate.

TLGNWA Can Draft or Revise A Contract For You

The best way to ensure your contract is well-crafted is to involve a lawyer that is experienced in drafting and review of contracts. The Law Group of Northwest Arkansas PLLC can help identify and mitigate potential risks and confirm the terms are legally sound and enforceable. We can also assist in monitoring each party’s performance to detect and address issues early if they arise.

What to Do if a Contract Breach Occurs

Even the most carefully crafted contracts can be breached. If you suspect your business is on the losing end of a broken agreement, here are the steps to take to protect yourself and your company:

Review the Agreement

The first step is to thoroughly review the contract to understand the specific terms that have been breached and determine what remedies are available and if the breach is a minor inconvenience or a major disruption to your business operations.

Documenting the Breach

Collect all documentation related to the agreement. This could include emails, invoices, project timelines, or other records demonstrating the contract terms and the alleged breach.

Seek a Direct Resolution

Once you clearly understand the situation, reach out to the other party. Explain your perspective on the breach and see if you can resolve the issue directly. If your attempts to resolve the breach directly are unsuccessful, or the breach is significant, consult with a business attorney in Arkansas.

Take Legal Action, If Necessary

If negotiations fail, filing a lawsuit seeking compensation or to enforce the contract might be necessary. Your lawyer could also advise attempting to resolve the issue through negotiation or alternative dispute resolution, such as mediation. Alternative dispute resolution can be less costly and time-consuming than litigation, but it may not be appropriate in all situations. Your attorney can explain your options and help you decide on the best path forward.

TLGNWA Can Help after a Contract Breach

A breach of contract can be a stressful situation for any business owner; however, you can protect your interests by working with an experienced business lawyer.

Don’t hesitate to take action if you believe a contract has been breached. The Law Group of Northwest Arkansas PLLC understands the complexities of contract law, and our team will advocate for you and your business. We’ll work to resolve the issue and make things right, even if it means going to court.

Call 479-316-3760 today or contact us to schedule an initial consultation.