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What is a contract breach and how are they handled?

On Behalf of | Oct 7, 2020 | Business Litigation

Many businesses rely heavily on contracts to protect them. When your company enters into a contract with another entity, which might be an individual or another company, it’s imperative that you fully understand the terms of the contract.

There are times when one side of the relationship might breach the contract. This means that they didn’t comply with the terms. In many cases, breaches of contract can be resolved without having to go to court, however, you should be prepared to protect your company through litigation if necessary.

Why would someone breach a contract?

There are many reasons why a contract might be broken. Negligence, recklessness, willful intents and things that are out of one party’s control might all lead to a breach. When you’re dealing with an issue like this, determining the cause of the breach can help determine what you should do. If the situation was unavoidable or an honest mistake, you might be able to work out adjusted or alternative terms so the project can get back on track.

What are the different types of breaches?

There are four types of breaches. These include:

  • Anticipatory breach: When on party knows in advance that they won’t meet the terms of the contract
  • Minor breach: When you don’t receive the service or item by the date stated on the contract
  • Actual breach: A willful refusal to comply with contract terms
  • Material breach: Receiving items or services that aren’t as outlined in the contract

What options are available to handle contract breaches?

Many contracts have a resolution clause in them. This outlines what options you have to resolve the matter if the contract is breached. The majority of contracts these days have a mediation or alternative dispute resolution clause in them. When this is present, you’re almost certainly forbidden from filing a lawsuit over the breach. Instead, you and the other party will work to come up with a mutual agreement to end the matter or you’ll turn to an arbitrator who can do this.

Before you sign or offer a contract, you must be sure that you know exactly what’s expected of you and what recourse you have if the terms are broken. Working closely with an attorney can help ensure that the contracts you’re going to enter into are protecting your interests.