In an ideal situation, a business contract is supposed to benefit both parties involved in the contract.
But this is not always the case. Certain things can happen that may make it impossible to fulfill all the terms of the business contract. Or sometimes one party may just decide not to meet their end of the bargain.
What is a breach of contract?
A breach of contract can be described as a failure to meet the terms of a contract without a lawful or justifiable excuse. A good example of a breach of contract is when an employee does something against something that’s stipulated on his or her employment contract.
Below are more examples of what can be termed as a breach of contract:
• When a supplier fails to deliver goods after being paid
• Failing to pay a contractor after they have completed a job
• Delivering goods late
• Failing to pay a supplier
• Delivering goods when they are damaged
How does a breach of contract affect the running of a business?
Breaching of contracts can have negative effects both for individuals and small businesses. They can result in huge losses of money and time. They can also cripple the operations of a business.
For example, if a manufacturing company has paid for the raw materials to be delivered and they are not delivered or delivered late, the breach of the agreement will definitely cause loss of money to the company.
However, it is important to note that all contract breaching is not the same. If you are looking to pursue a lawsuit, then there are four criteria that should be met.
They include the following:
• A material breach: refers to the failure of one party to fulfill the terms set out in the contract. Such a breach allows the affected party to seek damages from the party that has breached the contract.
• Fundamental breaches: These types of breaches may also end up in court. It allows the aggrieved party to cease from fulfilling the terms of the contract and sue for damages. For example, if you have signed a lease agreement for office space and on the day of moving in you find the place occupied by someone else, then the landlord is liable for a fundamental breach of contract.
• Anticipatory breach: This is a situation where one party can conclude that the contract has been broken when there is tangible evidence that the other party is not going to abide by the terms of the contract.
For instance, if you hire a contractor to paint your entire building in a month’s time and four days to the deadline, you realize no work has started. This allows you to call off the contract and demand for damages.
• Minor breach: this is a partial breach of a contract. For example, you hire a developer to build a business website and finish the work but with errors here and there.
Regardless of the type of contract breached, you are supposed to come up with facts that will make your case watertight. There are several things that you will have to verify before your case can be admitted:
• That the contract existed
• Prove that the contract was broken
• That you lost money as a result of the contract breach
• That the defendant was the one who broke the contract
There are several types of remedies that the court usually awards to the aggrieved parties. They include the following:
• Compensatory damages: This is where the person who broke the contract is asked to pay for the losses caused.
• Liquidated damages: these are agreed damages stipulated on the contract
• Incidental and consequential damages: these are damages awarded by the court to both parties if they both knew of the potential losses
• Punitive damages: is money awarded to the victim for the offensive actions or behavior of the person who breached the contract
• Attorney’s fees: money recovered as damages in a contract case