Contract breaches lead to costly and life-disturbing lawsuits, but are there other options to tackle a breach of contract? Hear it from the law experts only.
Contracts are vital in business deals. A contract ensures two or more involved professionals or organizations stand on their words and perform their obligations. However, failing to do so leads to the breach of contract, which can have multiple repercussions.
If you are not paying enough attention to your contracts or the way your contracts are managed, your company might be at risk of dealing with legal problems and even financial loss. Most companies implement standardized policies & practices throughout the company to efficiently draft, negotiate, sign, complete, and store contracts. Or in case they find it challenging to handle the contracts, they simply go for contract management services for better outcomes.
If you are also struggling to manage your business contracts, read through this piece of writing as we have collected and presented experts’ opinions on dealing with a contract breach.
Let’s read what tips they have provided.
Expert Tips on How to Deal with a Contract Breach
1. Before and After the Breach of Contract
David Reischer, Esq. Attorney & CEO of LegalAdvice
BEFORE – Below is a tip for a person to respond in their legal papers by filing a claim of an anticipatory breach with the court when another party demonstrates that they will not perform under the terms of the written or oral contract. ‘Anticipatory repudiation’ or ‘Anticipatory Breach is a legal term in the law under contract law that describes a declaration by the promising party to a contract that he or she does not intend to live up to his or her obligations under the contract.
A clear refusal by one party to a contract to perform his or her future obligations under the contract that is expressed either by a clear statement of refusal or perhaps by a statement or action that clearly implies refusal despite the written terms of the contract. A plaintiff should file a claim of an anticipatory breach under these circumstances.
AFTER – Below are the tips for a person to respond in their legal papers by asking the court for a remedy after the other party has breached the agreement. The following five specific solutions for a breach of contract include rescission, money damages, reformation, restitution, and specific performance. Money damages are actual monetary payments that a breaching party has to make money payments for violating the terms of the contract. Restitution is a legal remedy imposed by the court to restore the injured party to the position occupied before the contract. Rescission is when the contractual duties of both parties may be terminated by the court. Reformation may be imposed by a court when reforms or changes to a contract are mandated so as to correct any inequities. Specific performance is when the breaching party must perform their duties as specified by the contract, and it is imposed as such by the court when money damages are insufficient so as to compensate the plaintiff. A plaintiff should ask the court for one of these remedies when the other party has already breached the contract.
2. Try to Settle Down Things at the Initial Stage
JaredWeitz, Founder/CEO at United Capital Source Inc
Before you run to the courtroom, write a before action breach of contract letter. In this letter, outline the details of the breach, what claims of interest, if any, are owed and highlight what legal action will be taken if they do not correct the breach of contract. Be sure to write it clearly, concisely and without any errors. I would suggest if you have a lawyer on staff to have them either write or review the content prior to it being sent.
In many cases, this single action will get the breach of contract resolved and save you from going through the tedious process of a legal proceeding. Don’t be passive and delay this contact, it is best for you to take action as opposed to waiting around hoping the other party will correct the breach on their own. Throughout this process, make sure to keep track of any losses that are being incurred as a result of the breach.
Be prepared if you do go through the legal process that it could take months, in some cases, years for a settlement to be reached. Not only do you need to prepare your business, but also for your personal stress and wellbeing to handle this process. Because of the time and finances involved in the breach of contract cases, avoiding litigation is the most important thing to be done.
3. 6 Sure-shot Tips to Prevent Contractual Disputes
Angela Majette Owner at Just Write Legal
Have a written contract drawn up by an attorney who can explain each party’s responsibilities under the contract and what happens if one party doesn’t fulfill its responsibilities. It is important that you understand the document that you are signing in laymen’s terms.
After the contract is signed, there should be a designated person on your team (contracts manager) who receives and manages all of your business contracts. During the contract period, your contracts manager will educate your team members on their respective duties under the contract. For instance, if the contract requires you to provide an accounting or billing statement every 60 days, your contract manager will inform your accounting or billing department of this responsibility and follow up that department to ensure that the company is in compliance with that specific provision of the contract. Small businesses and entrepreneurs should hire a business manager to oversee your business contracts and professional communications.
Tips to deal with a default:
While texting is sometimes a more convenient form of communication, you should relay all business communications that involve the material terms of the contract via email or letter. Material terms may include: extending a deadline, substituting merchandise, change in price, delivery delays, production delays, change in subcontractor, or other material terms of the contract.
If you believe that the other party has breached the contract, analyze the terms of the contract and determine whether or not the issue at hand constitutes a “default” as that term is defined within the contract.
If the other party is in default, follow the procedures outlined in the contract, which may include the specific manner to notify the other party of the default (email, certified mail, etc.). The contract may also provide time for the defaulting party to cure the default upon proper notice of the breach.
Tips to deal with a breach of contract:
If the other party has not cured the default within the time provided in the contract, you should act swiftly to enforce the contract. Some contracts require the parties to mediate the dispute before filing a lawsuit. Be sure that you proceed in the manner authorized by the contract.
If you decide to file a lawsuit, explore your options. See if your claim qualifies as a small claim or commercial claim in your state. If you entered into the contract in your individual name and the amount of the claims meets the monetary limit of your state, you may be able to file a small claim. Generally, small claims provide quick resolution of the issue, and the parties appear without attorneys (think Judge Judy). While businesses are usually required to be represented by an attorney, some states, like New York, permit businesses to file commercial claims and proceed without an attorney, with some limitations. Do some research on your own and then consult with an attorney to determine the best course based on your particular issue, the terms of your contract, and your desired outcome.
Be aware of the Statute of Limitations. The Statute of Limitations is the deadline or time limit for when a suit must be filed. If you do not bring suit within the prescribed time limit, your lawsuit could be dismissed. Under New York law, the general statute of limitations applicable to contractual disputes is six years. C.P.L.R. §3211(a)(5). In Florida, a lawsuit based on a written contract must be brought within five (5) years. § 95.11(2)(b), Fla. Stat. (2019). A lawsuit based on an unwritten (verbal or oral) contract is four (4) years. § 95.11(3)(k), Fla. Stat. (2019). However, there are exceptions to these rules, and there are other legal doctrines that could apply to your situation and adversely impact your ability to prevail in a lawsuit.
- Know what you’re signing. Make sure that you understand all of your contractual obligations.
- Send all important communications via email or letter.
- Refer to the terms of the contract for guidance if you believe the other party is in breach.
- Explore your options before filing a lawsuit.
- Time is of the essence. Act timely to preserve your right to enforce the contract.
- Consult an attorney and/or hire a business manager to mitigate risks and help avoid contract disputes.
Generally, there are early warning signs of when a party is about to breach a contract. Communication and legal representation are essential.
4. Try to Negotiate before Filing a Lawsuit
Eckhard Ortwein CEO Lean Case
When another party doesn’t fulfill the terms of a contract, it can leave you feeling deceived and can be challenging to accept. But before you take any legal actions, it’s essential to think carefully to determine whether pursuing a claim is a reasonable and cost-effective solution.
Another aspect to consider is the relationships between the contracting parties. If your priority is maintaining good relationships with local businesses, it’s better to use alternative methods of negotiation. You should immediately phone the breaching party and request full compliance with the contract. If there is a delay after the initial phone call, you should send a written request, which in the majority of cases can resolve the matter.
5. Have clearly stated contract breach terms and conditions
Leah Norod, an associate attorney with Romano Law
Preventing contract breach starts with making sure your agreement is clearly written and has standard protections and procedures. Most importantly, your contract should outline what is expected of each party in order to avoid inadvertent breaches. If something is particularly important, such as confidentiality or certain representations, make that known within the agreement, so there’s no question.
If there is a breach, look to what your agreement says on how to handle it. Is there an opportunity to cure the breach? If so, how long does the breaching party have, and what happens if they fail to cure? Maybe there are liquidated damages involved if the agreement specifies that monetary damages would be difficult to determine. Absent anything specific, review the contract’s dispute resolution section. If the breach isn’t a huge deal, or if you’re willing to look the other way just once, make sure your contract has a standard waiver provision, which will typically specify that failure to enforce your rights under the agreement if there’s a breach doesn’t waive your right to do so going forward.
In the aftermath of a breach, use it as a learning experience. You can’t always prevent bad behavior, but you can strengthen your agreement to avoid costly litigation and to settle a dispute more quickly – if the breach is obvious because the agreement language was clear, you’ll likely have an easier time enforcing your rights.
6. Lawsuits are Costly, so Think Before You File One
MartinPeters Eckerd Connects Clearwater
If you feel that the other party is going to breach, reach out to them to express your concerns. If you do not have retained legal counsel, that is a good time to do so. Each state has slightly different laws, but getting out ahead of an issue is generally advantageous.
If you do communicate with the other party, do so in writing, and if the conversation is oral, follow up in writing with your understanding of the conversation.
When in an anticipatory breach, it’s important to figure out where you want to end. Do you really just want to cancel the contract and walk away, or do you want some type of performance? Litigating a breached contract can be costly, so being reasonable and understanding is important.
If a breach has already occurred, it’s important to consult with an attorney to fully understand what your rights are. You likely have some type of recourse and should be sure to protect your interest.
7. Including Dispute Resolution Provision in Your Contracts
Ruth Carter, Owner – Carter Law Firm, PLLC
A contract is a relationship-management document. It should have all the necessary terms so that the expectations for each party are clear as well as the consequences for breaching the contract, and how common problems related to the relationship will be addressed. It should be written in plain English, so everyone involved can understand the terms.
Ideally, it should be less painful for the parties to comply with the contract than to violate it. The dispute resolution provision should be clear about how problems will be resolved (typically mediation, arbitration, litigation, or a combination of these), the county and state where the problem will be addressed, and which state law will govern the dispute. I regularly include a provision that requires the non-prevailing party to pay the prevailing party’s attorneys’ fees and costs.
8. Send a Letter about The Breach in Writing
Tabitha R. Myers Managing Attorney MidtownLaw
1) READ THE CONTRACT
The contract between the parties may have provisions dealing with a breach by a party, and whether the breach is material or significant, or not material. The contract may also have notice provisions that require a party to notify the other party in writing that it is in breach, or it may contain a required cure period where the other side, upon being notified of a breach, has an opportunity to cure or fix the breach. By reading the contract, you can figure out if there are any steps you are required to take by the contract based on the breach.
2) NOTIFY IN WRITING
You should always notify the other side of their breach in writing. If the contract provides for an address or method for which to provide official notice of a breach to a party, make sure to follow that provision’s instructions. That doesn’t mean you have to sit on your hands necessarily, but at the very least I recommend putting the notice in writing, as well as writing down any steps you intend to take based on the other party’s breach.
9. A Written Notice of Breach is Always Better than a Legal Action
EliMelamed Attorney at Law Offices of Eli Melamed
My top tip pre-breach is to consult with an attorney prior to even entering into a contract, and have your contract drafted or reviewed and negotiated by your attorney, to minimize the potential for or likelihood of a breach. Some contracts are drafted so ambiguously or vaguely that even unintended acts or omissions can be interpreted by some as a breach of the contract because of how it’s written. You should ensure the contract is written such that it clearly identifies the parties, their respective obligations and rights under the contract, and specifies the milestones or dates for performance of major deal points. Again, the less grey area, the better. Also important is to ensure the contract you are entering provides for attorneys’ fees in the event of enforcement. This is usually mutual and can be a double-edged sword, but it also gives you recourse if you need to sue later, and affords you attorneys’ fees if you are the prevailing party in the suit or action.
If one believes an agreement to which they are a party has been breached, the first thing to do is send written notice to the breaching party of the belief of the breach. Most well-drafted contracts have notice and cure provisions, which require a non-breaching party to give the breaching party notice of a breach or suspected breach and time to cure it prior to taking legal or administrative action. Prior to or at this point, you will want to have been in touch with your attorney to ensure notice is being given properly, as well as to be ready to take prompt action if the breaching party fails or refuses to cure the breach.
10. Evaluate your Loss and Decide if You Should Take Legal Action or not
J.R.Skrabanek Jones Senior Counsel with Jones Law Firm
The best thing to do when you believe a party has breached a contract with you is to politely and professionally confront them in writing about it and see if they will remedy the breach. If they do not, you should evaluate your damages to determine whether the matter is worth pursuing or best forgotten. If you think you have been damaged enough to proceed, I would strongly advise you to hire a reputable attorney to pursue your rights and remedies in a court, as authorized by the contract. Mediation is another alternative that can occur at the same time as any litigation. A skilled attorney will help determine the best options.
As most legal experts suggest to resolve contract-related conflicts without filing a lawsuit in court, it is considered as a better way to deal with a contract breach. And if it doesn’t work, it is recommended to consult an attorney who can handle your case and help you win.
Cathrine Troyer writes about law office management, contract management, technology, and business law. She is passionate about teaching lawyers and legal professionals on how to renew their strategies and use technology in their cases and does so regularly for her clients at Cogneesol.