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What Should Business Owners Do When a Contract is Breached?

Two businessmen fighting over breach of contract

Facing a Breach of Contract 

A breach of contract can be detrimental to any business. When two parties enter into a binding agreement, they expect it to be fulfilled as stated. However, if one party fails to uphold their end of the bargain, the other party may have legal recourse. Business owners need to understand their rights and options if a breach of contract occurs. Having an experienced business litigation attorney on your side can make navigating this complex issue much easier.

Our team of business litigation attorneys has 35+ years of experience in contract law and has advised clients navigating breach of contract. Call Davis Bucco & Makara today at 610-238-0880 for more information. 

What Constitutes Breach of Contract?

A breach of contract simply means that one or more terms of a contract have been violated. This can occur in many ways, such as:

  • Failing to deliver goods or services as promised

  • Delivering defective or faulty products

  • Not paying on time or in full

  • Failing to meet deadlines or milestones

  • Violating non-compete, non-disclosure or exclusivity clauses

  • Using intellectual property in unauthorized ways

Essentially any failure to do what was agreed upon in the contract is a breach. Even if it seems minor, it should not be ignored.

What Should You Do First?

Upon discovering a potential breach of contract, the first step is to review the agreement carefully. Make sure you understand exactly what duties and responsibilities each party owes. Check whether proper notice requirements have been followed. Oftentimes contracts require written notice of a breach and an opportunity to cure it.

If you confirm a true breach has occurred, document it thoroughly. Gather evidence like emails, photos, reports or invoices. Be prepared to explain specifically how the other party violated material terms. Present this information to them through proper channels. With prompt action, some minor breaches can be remedied before turning into major legal issues.

When to Involve a Lawyer in Your Business 

If attempts to resolve a breach of contract fail, it may become necessary to seek legal counsel. A business litigation attorney can advise if you have grounds to terminate the contract or sue for damages. They can also provide guidance on settlement negotiations. Having a lawyer send a formal breach of contract notice or demand letter often spurs the other party to take corrective action.

Some situations that typically warrant legal help include:

  • Repeated or willful breaches

  • Major delays or non-performance

  • Breach of exclusivity, non-compete, or confidentiality clauses

  • Significant financial injuries

It is especially important to contact an attorney immediately if the other party's breach has caused harm to your business. Time limits apply for taking legal action.

Understanding Contract Dispute Resolution Options

If a breach of contract dispute cannot be resolved directly between the parties, there are alternatives to filing a lawsuit. Many contracts contain provisions mandating negotiation, mediation, or arbitration to settle conflicts. Understanding dispute resolution clauses in an agreement is critical.

Some potential options for handling contract breaches out of court include:

  • Negotiation - Structured settlement talks between parties

  • Mediation - Using a neutral third-party mediator

  • Arbitration - Binding decision by an arbitrator

  • Mini-trial - Informal presentation of facts before skilled professionals 

Your business litigation attorney can advise whether these alternatives may be appropriate. If negotiations fail completely, filing a civil lawsuit for breach of contract may be the only recourse.

What Remedies Can Be Sought for Breach of Contract?

There are several legal remedies available when a contract is breached:

  • Compensatory damages - Monetary compensation for financial losses

  • Consequential damages - Recovery for indirect injuries like lost profits

  • Specific performance - Seeking the promised goods or services

  • Rescission - Cancelling the contract and undoing its terms

  • Injunctive relief - Court order to stop specific actions

  • Liquidated damages - Collection of pre-set monetary penalties

The remedies pursued will depend on the situation and losses involved. An experienced business litigation attorney can determine the best options to recover what you are owed.

How Can Business Owners Avoid Breach of Contract Issues?

Some proactive steps business owners can take to avoid breach of contract problems include:

  • Vetting potential partners/clients thoroughly

  • Using clear, detailed contracts for all agreements

  • Setting realistic timeframes and deadlines

  • Clarifying responsibilities and performance metrics

  • Including dispute resolution provisions

  • Requiring insurance/bonds from higher-risk parties

  • Seeking deposits/collateral for large orders

  • Staying involved throughout contract periods

Addressing problems promptly, sending reminders as deadlines near, and maintaining thorough documentation are also wise practices. Having experienced legal counsel review any sizable contract before signing can help identify potential pitfalls.

Turn to a Business Litigation Attorney for Contract Dispute Help

Breach of contract issues can be complex and frustrating for business owners. An experienced Philadelphia business litigation attorney can be invaluable in assessing your options, protecting your rights, and resolving contract disputes through negotiation, litigation or alternative means. They will determine the best strategies for recovering damages and maintaining your profitability when contracts are broken. Don't let a breach of contract negatively impact your company's bottom line - seek legal guidance right away.

Frequently Asked Questions About Breach of Contract

1. What is considered a material breach of contract?

A material breach is one that defeats the essential purpose of the contract or causes substantial financial harm. Failure to deliver core products/services promised or breaching major confidentiality, non-compete, and exclusivity clauses are examples.

2. What should I do if I want to terminate a contract due to a breach?

Review the agreement’s termination provisions. Send a written notice identifying the breach and allowing time to cure if required. Consult an attorney to ensure proper steps are taken or you may be accused of wrongful termination.

3. Can I recover litigation costs if I sue for breach of contract?

It depends on the contract terms and laws of the state. Many agreements allow recovery of reasonable legal costs from a breaching party. An attorney can clarify what expenses you may recoup.

4. What if the breach was due to circumstances beyond a party's control?

There may be protections if events like natural disasters, loss of financing, or supplier failures make it impossible to fulfill the contract. But the party claiming "force majeure" still has duty to mitigate damages. Notice and proof requirements apply.

5. How long do I have to take legal action for a contract breach?

Breach of contract claims typically must be filed within 2 to 6 years. The statute of limitations varies by state and type of contract. An attorney can advise you on important deadlines. Act promptly to preserve your rights.

Selecting the Right Business Litigation Attorney for Your Case 

Breach of contracts can be frustrating and complex. We are here to help you navigate your business challenges. Reach out to our experienced team at Davis Bucco & Makara by calling 610-238-0880