As the popular saying goes, ‘promises are meant to be broken.’ Although this isn’t necessarily true, it’s safe to say that any form of agreement, no matter how big or small, can be violated – whether intentionally or not.
And if the dispute arises from a business setting, things can escalate quickly. Lawsuits are expensive, time-consuming, affect your reputation, and deplete your resources. That’s why you’ll want to avoid contract breaches as much as possible.
But before hopping on how to make your vendor-supplier relationship infringement-free, it’s wise to understand the scope of a contract breach first.
What is a Breach of Contract?
As the term implies, a breach of contract is any violation of one or more obligations in a written agreement. It can happen when:
- A party fails to uphold its end of the deal without a valid reason.
- One party interferes or deters the fulfillment of duties of the other.
- Groups involved perform actions considered illegal by the contract.
Generally, most contracts end when both parties have fulfilled their commitments. However, deals and transactions do not always end smoothly, making breach of contract disputes a fairly common occurrence.
Types of Breach of Contract
Contract breaches are divided into four types:
- Material Breach of Contract
This is a serious and substantial violation. It occurs when one party doesn’t fulfill its duties or fails to accomplish them on time, resulting in significant financial losses for the aggrieved party. For example, a supplier is supposed to sell a certain amount of goods to a vendor. If the supplier sells the available stocks to another vendor and fails to provide for the first one, that is a breach of contract.
- Minor Breach of Contract
Also known as a partial breach, this violation happens when a deliverable has been completed, but the party in question doesn’t meet certain parts of the obligation. Although it might be of little consequence, a series of minor breaches can lead to a material breach dispute. Common examples include delays and defective goods.
- Anticipatory Breach of Contract
This occurs when the plaintiff suspects the defendant of breaching the contract by neglecting responsibilities that contribute to completing the contract. Simply put, it’s just speculation and will be difficult to prove in court without concrete evidence.
- Actual Breach of Contract
Unlike the material and partial type, this breach happens when the breaching party has full knowledge of their violation but still refuses to fulfill their obligation and deliberately ignores the plaintiff’s rights. Cases like these often end with the aggrieved party being paid monetary compensation by the accused of direct and indirect losses resulting from the breach.
How Do You Avoid Breach of Contract Disputes?
If you’re not careful, you’ll be vulnerable to contract disputes – whether you’re a supplier or a vendor. The best way to avoid misunderstandings is to ensure that the contract itself is breach-proof. Here are some useful measures to take:
- Hire a professional who specializes in contracts. Yes, you’ve guessed it right! You’ll need the assistance of a contract lawyer or business transactional attorney. They can draft legal documents, review your current agreement, and help protect your business if it gets caught in a litigation case.
- Avoid general language when drafting a contract. If you decide to skip on getting a legal consultant, your next step would be to write the contract as meticulously as possible. Don’t use vague terms like ‘reasonable measures’ that may mean differently for you and your business partner. Doing so ensures that both parties stand on even ground and fully understand the gravity of your responsibilities.
- Specify payment obligations. Since money is the core element in any transaction, the contract must be crystal clear when discussing financial matters. Make sure it states to whom or where the money is sent, when it is due, and how payment is made (installment, cash, checks).
- Ask questions. Communication is the key to a healthy business relationship. Don’t hesitate to bring up your concerns before closing the deal. It won’t be easy to address them once the contract has been signed.
- Lastly, read the contract twice before you sign. A contract isn’t only a piece of paper. It can be a double-edged sword that can help your business grow or cause problems. So make sure you go over the agreement twice and check for loopholes you might have missed.
What To Do if Your Partner Breaches the Contract?
Before filing a lawsuit, make sure you talk things out with your vendor or supplier. They might have unintentionally violated the contract. But if things escalate to a legal battle, here’s a list of documents you have to provide in court:
- Specific examples that prove the opposing party has breached the contract.
- Proof of damage and losses
- A definition of performance standards
- And, of course, a copy of the written agreement.
Keep in mind that a lawsuit is an extensive process. It might take weeks and months to settle. The court will have to investigate and determine which of the two parties is really at fault.
How to Deal with a Breach of Contract Accusation
First of all, take a deep breath and calm down. Panic won’t do you any good. As stated above, discuss the violation with your partner. If possible, make amends and necessary compensation without taking the situation to the next level. However, if you find yourself in court, The Balance Small Business shares how you can defend yourself:
- Fraud. You can claim this stand if your partner failed to disclose a critical business-related concern, or made a false statement about it, therefore voiding the contract.
- Duress. A contract will be deemed invalid if you were physically forced or threatened to sign the document.
- Undue influence. Quite similar to duress, one can use this defense if the plaintiff utilized leverage to force the defendant to sign the contract.
- Mistake. Although you can’t invalidate a contract just because you made a mistake, you can still mitigate the consequences if you can prove that the other party also made an error regarding the agreement.
- Statute of limitations. Breach of contract disputes should be concluded within 3-6 years. If it’s not yet settled after the time limit, the defendant can claim that the statute of limitations has expired, ultimately throwing the case out of court. It’s rare, but it happens.
Take note that even if you have the right to defend yourself, you should never lie in court. It will only worsen the consequences. Lastly, be sure to consult your lawyer before taking any legal action.