Find out the best steps to take if there is a contract breach.
When you encounter a contract breach by a second party, you might not know what to do and that can leave you very confused. What do you do if there is a contract breach? Here's the solution for you!
How Can Contracts Breaches Happen?
There are various ways in which a breach of contract can take place, as outlined below:
- Anticipatory Breach
Breach of contract that occurs when one party indicates they will not fulfill their obligations before the actual deadline.
- Actual Breach
Actual Breach occurs when one party fails to fulfill their duty or promise by the agreed-upon date in the contract. Both options will require a significant amount of time and money to be resolved, potentially a substantial amount of both. That is the reason why it is crucial to take multiple measures when examining a possible breach.
What To Do If Your Company Breaches A Contract?
1. Obtain All Information
For you to carry this out perfectly, you should:
• Obtain a copy of the agreement (and any changes).
• Gather all pertinent information and paperwork regarding the execution of the agreement (correspondence between involved parties, progress summaries, items delivered, financial records, as well as any grievances or input from the opposing party).
• Consult all important individuals involved to assist in organizing everything.
• Establish the time of occurrence of the breach, if there was one.
• Obtain a copy of the agreement (and any changes).
• Gather all pertinent information and paperwork regarding the execution of the agreement (correspondence between involved parties, progress summaries, items delivered, financial records, as well as any grievances or input from the opposing party).
• Consult all important individuals involved to assist in organizing everything.
• Establish the time of occurrence of the breach, if there was one.
2. Carefully Examine The Contract
Depend only on your own judgment to determine if the company has truly breached the terms of the contract in question. Those who are not trained in the legal field are well-known for interpreting a contract differently, either adding or subtracting information, without paying much attention to the contract's actual contents.
Alternatively, they may just be misunderstanding the agreement. Either one can cause unnecessary work or concern. Make sure that legal evaluation is carried out by experienced professionals and not swayed by individuals lacking official legal knowledge. Sit down with the agreement and carefully analyze it based on the information you have gathered.
That is in order to comprehend the particular terms and conditions in question, especially regarding any obligations or provisions that may have been violated. Maybe after looking over the contract, you won't find any breach (which is good) or you will believe a breach has actually happened (which is bad). If you encounter the second option, then read on.
Alternatively, they may just be misunderstanding the agreement. Either one can cause unnecessary work or concern. Make sure that legal evaluation is carried out by experienced professionals and not swayed by individuals lacking official legal knowledge. Sit down with the agreement and carefully analyze it based on the information you have gathered.
That is in order to comprehend the particular terms and conditions in question, especially regarding any obligations or provisions that may have been violated. Maybe after looking over the contract, you won't find any breach (which is good) or you will believe a breach has actually happened (which is bad). If you encounter the second option, then read on.
3. Identify The Breach's Category
If you suspect a breach has happened, make an effort to identify if it is a:
- Material Breach
A major infringement or inability to meet the terms of the contract that causes significant damage to the party not in breach, eroding the core of the agreement. This breach strikes at the core of the agreement, preventing the other party from receiving the intended contractual benefit. A material breach generally enables the party not in breach to end the contract or stop doing its own task in a similar manner.
- Minor Breach
A breach that does not significantly weaken the overall contract. A small violation does not stop the contract from achieving its main objective. In the event of a slight violation, the parties can still finalize the contract in its essential form.
- Anticipatory Breach
Occurs when a party claims a breach before the contract performance is due.
4. What Information Is Provided In The Contract Regarding The Nature Of Breach?
The most important provisions here are these:
• Chance to remedy
• Restrictions on liabilities (caps on liability, exclusion of consequential damages, etc.)
• Is the breach justified by Force Majeure?
• The process of resolving disputes (through litigation, arbitration, waiving of jury trial, seeking recovery of attorneys' fees, etc.)
• Escalation procedure - procedure must be adhered to by the parties in order to address issues prior to pursuing legal action or arbitration
• Ending (termination at discretion, significant breach, etc.)
• Attention
• Court-ordered remedy
• Rights if there's a severe breach.
• Dealing course - (has the breach persisted for such a long time that it has effectively modified the contract through the parties' actions over time?).
• Chance to remedy
• Restrictions on liabilities (caps on liability, exclusion of consequential damages, etc.)
• Is the breach justified by Force Majeure?
• The process of resolving disputes (through litigation, arbitration, waiving of jury trial, seeking recovery of attorneys' fees, etc.)
• Escalation procedure - procedure must be adhered to by the parties in order to address issues prior to pursuing legal action or arbitration
• Ending (termination at discretion, significant breach, etc.)
• Attention
• Court-ordered remedy
• Rights if there's a severe breach.
• Dealing course - (has the breach persisted for such a long time that it has effectively modified the contract through the parties' actions over time?).
5. What Can Be The Solution?
Think about what kind of compensation (and how much) or solutions could be provided to the other party. Comprehending this information will influence decision-making for both the legal department and the executive team.
6. Seek External Legal Counsel In The Event Of A Significant Breach
The knowledge and insight of a skilled commercial litigator can assist in clarifying the situation, the repercussions of the breach, and the most effective way to address the harm (such as attempting to prevent a formal legal battle). Furthermore, verify whether you have insurance that includes the breach.
7. Notify The Company
At some stage, you will notify the appropriate stakeholders in the company about a possible violation of a contract and the potential for legal action (as well as financial losses). This communication is expected to be privileged because it will include legal advice. The communication could be viewed as attorney work product prepared for potential litigation.
If you want to consider it as a work product, you should also start a document preservation hold. In any case, make sure to guide the business through the information, the agreement, the regulations, and your recommendations for the next steps. Moreover, the company must ensure that their communication regarding the incident is expressed accurately and wisely.
Messages regarding possible contract violations must only be directed to the legal department. This guarantees that these conversations stay confidential and are not shared with non-legal employees, which could create complications if brought up in front of a jury.
If you want to consider it as a work product, you should also start a document preservation hold. In any case, make sure to guide the business through the information, the agreement, the regulations, and your recommendations for the next steps. Moreover, the company must ensure that their communication regarding the incident is expressed accurately and wisely.
Messages regarding possible contract violations must only be directed to the legal department. This guarantees that these conversations stay confidential and are not shared with non-legal employees, which could create complications if brought up in front of a jury.
8. Find The Most Optimal Direction To Proceed
If you think that the company has significantly violated, the first step is to remedy the breach. The second step involves making the intricate choice of how to address the breach with the other party. If you can say you found the problem and prevented the breach, you will be in a more advantageous position.
During the conversation with the other party, be prepared to offer a peace gesture such as money, credits, additional perks, or anything valuable to make them more willing to resolve the issue without going to court. You have the option to propose early mediation as a method to settle any discrepancies.
During the conversation with the other party, be prepared to offer a peace gesture such as money, credits, additional perks, or anything valuable to make them more willing to resolve the issue without going to court. You have the option to propose early mediation as a method to settle any discrepancies.
9. Make Changes In Place
In order to avoid future breaches (or similar breaches), examine and potentially update internal procedures, safeguards, and training initiatives regarding the incident. This will probably involve educating the company about contracts in general, particularly problematic contracts, and the importance of drafting wisely (such as avoiding speculation on legal matters unless liaising with the legal team).
If you think your company is possibly violating a contract, stay calm. Collect all the information and counter to validate your legal decision that a breach happened. Assess how the contract impacts you in the event of a violation. Have the company take action as fast as they can, and then decide with the help of legal advisors and business executives how to communicate with the other party.
If you think your company is possibly violating a contract, stay calm. Collect all the information and counter to validate your legal decision that a breach happened. Assess how the contract impacts you in the event of a violation. Have the company take action as fast as they can, and then decide with the help of legal advisors and business executives how to communicate with the other party.
What If Another Company Breaches Your Company's Contract?
1. Have A Conversation With The Second Party
Contract violations occur for a variety of reasons. Hence, it may benefit you to address the breach and find a suitable resolution instead of terminating the relationship. For example, think about a wholesaler whose retailer has not paid for recent orders. As a result, the supplier has the ability to cancel the contract and bring the relationship to an end. While this could potentially fix the problem, they risk losing a valuable customer who might have continued buying their products in the future.
Before proceeding with any official action, make sure to get in touch with the other party. You might find that the breach was caused by a temporary issue that they can resolve quickly. It is crucial to remember that some countries and specific state laws mandate that parties in a civil dispute must attempt alternative dispute resolution before starting civil litigation. This could enable you to reduce both time and expenses.
Before proceeding with any official action, make sure to get in touch with the other party. You might find that the breach was caused by a temporary issue that they can resolve quickly. It is crucial to remember that some countries and specific state laws mandate that parties in a civil dispute must attempt alternative dispute resolution before starting civil litigation. This could enable you to reduce both time and expenses.
2. Revise Or Change The Contract
Since a contract is a private arrangement between two parties, it is the responsibility of those parties to come to terms, meet obligations, and determine the course of action in case one party breaches a condition. In case of a breach, you have the option to modify the contract to show the new circumstances, positions, or needs of the parties instead of ending the agreement right away.
Even though you have the option to make changes to your agreement verbally, we advise you to document the alteration in writing. This is also known as a 'deed of variation'. A deed of variation is just a document that is written and signed to show how the parties have changed the contract. Let's go back to the earlier situation involving the wholesale supplier and retailer.
Picture the retailer being late on payment because they downsized the business. Therefore, the retailer is no longer selling the originally agreed-upon quantity of goods as outlined in the contract. Consequently, the parties could modify the agreement to decrease the quantity of the product that the retailer is required to order on a monthly basis.
Even though you have the option to make changes to your agreement verbally, we advise you to document the alteration in writing. This is also known as a 'deed of variation'. A deed of variation is just a document that is written and signed to show how the parties have changed the contract. Let's go back to the earlier situation involving the wholesale supplier and retailer.
Picture the retailer being late on payment because they downsized the business. Therefore, the retailer is no longer selling the originally agreed-upon quantity of goods as outlined in the contract. Consequently, the parties could modify the agreement to decrease the quantity of the product that the retailer is required to order on a monthly basis.
3. End The Agreement
In the event of a serious breach, you have the right to end the agreement. This entitlement usually occurs when the other party violates a crucial contract provision. Nonetheless, not every breach results in this entitlement. Make sure to adhere to the termination clause outlined in the contract.
A clause for termination specifies how one party can end the contract and might involve meeting specific requirements like written notice and a period of time required before termination. Ending the contract is a logical choice if there is no possibility of fixing the violation and maintaining the business partnership.
A clause for termination specifies how one party can end the contract and might involve meeting specific requirements like written notice and a period of time required before termination. Ending the contract is a logical choice if there is no possibility of fixing the violation and maintaining the business partnership.
