One of the most common challenges business owners face is when another party breaches their contractual obligations to the business. Houston business owners should understand what constitutes a breach of contract and what rights their company has when a breach occurs.
Understanding Breaches of Contract
A breach of contract occurs when a party fails to perform an obligation they agreed to perform for another party. One typical example is a party failing to pay for goods or services they received from another party.
Common Types of Breaches
Examples of breaches of contracts in business include:
- Material Breach – A material breach involves a violation of a contractual obligation that frustrates a principal purpose of the agreement. When a material breach occurs, the non-breaching party has the right to terminate their performance under the contract and seek financial compensation for their losses.
- Minor Breach – A minor breach involves a violation of a non-core provision of the contract. When a minor breach occurs, the non-breaching party must continue to perform their contractual obligations but has the right to seek compensation for any losses caused by the breach.
- Anticipatory Breach – An anticipatory breach occurs when a party declares or indicates they will not fulfill their obligations before the contractual deadline. Pursuing relief after an anticipatory breach comes with risks for the non-breaching party since the alleged breaching party may still perform under the contract.
Legal Remedies for a Breach of Contract
When your business experiences a breach of contract by a counterparty, you may pursue various remedies to make your company whole, depending on the circumstances surrounding the breach. Examples of legal remedies in breach of contract claims include:
- Financial Compensation – A non-breaching party may pursue financial recovery for losses they incur due to a breach of contract, such as lost profits, additional expenses incurred to secure replacement performance, or lost customer goodwill.
- Rescission – A breach of contract claim may seek rescission of the contract, a form of relief that aims to return the parties to as close to their pre-contract position as possible and cancels the contract.
- Disgorgement – When a breach of contract involves the usurpation of business opportunities, a non-breaching party may have a claim to require the breaching party to surrender any ill-gotten profits resulting from their breach.
- Specific Performance – In rare cases, a non-breaching party may have the right to seek specific performance, which involves a court ordering a breaching party to perform their contractual obligations. Specific performance usually occurs in real estate contracts or contracts involving unique, irreplaceable goods or services.
What to Do If a Breach Occurs
Steps your business can take if the other party to your contract breaches their obligations include:
- Review your contract to understand your and your counterparty’s respective rights and obligations.
- Document all correspondence and preserve all relevant documents, including emails, progress reports, and invoices.
- Reach out to your counterparty to begin informal negotiations to resolve the dispute.
- Contact a business litigation attorney as soon as possible to get legal advice regarding your company’s rights and potential legal avenues you could pursue for relief.
Furthermore, you should speak with legal counsel about the statute of limitations applicable to your contract claim to make sure you file a lawsuit on time to preserve your rights to seek legal relief.
How to Prevent Breaches of Contract
Businesses can protect themselves from disruptive and costly breach of contract disputes by following best practices such as:
- Utilizing legal review of proposed contracts so agreements have clear, comprehensive language
- Addressing dispute resolution through mediation or arbitration clauses
- Maintaining regular communication with all contractual parties to address issues before they escalate
- Keeping records of all communications regarding the contractual relationship
Contact a Business Litigation Attorney Today
When a counterparty breaches its contractual obligations to your business, you need experienced legal guidance to protect your company’s interests. Contact Mitchell Law, PLLC, today for a confidential consultation with a Houston business litigation attorney to discuss your options for pursuing a favorable resolution to a contractual dispute.