In business, parties may enter a commercial relationship under a contract that governs the parties’ respective rights and obligations. However, parties can breach contractual agreements in various ways – below are five of the most common. Knowing how to address a breach of contract can help you protect your financial and legal interests.
Scenario 1: Failure to Deliver Goods or Services
When a contract requires a party to provide goods or services, the failure to deliver as promised may constitute a breach of contract. A breach of contract for failure to deliver goods or services may involve not delivering within contractually required deadlines, not delivering the full scope of work contracted for, or failing to deliver anything to the buyer.
When your business purchases goods or services and the seller fails to make timely or complete delivery, you may respond by reviewing the contract terms to confirm the seller’s delivery obligations, sending a demand letter to request full performance, and negotiating a settlement that may include a revised timeline for delivery.
Scenario 2: Late Payment or Nonpayment
A buyer of goods or services must pay the seller. A contract’s terms will include the purchase price and details of payment, such as NET terms for invoices. Missing payments or failing to pay by contractual deadlines constitute a breach of contract.
When a counterparty fails to pay your business as required by your agreement, you might begin by sending an invoice reminder. You might also impose interest or late fees if the contract allows it. Continued nonpayment may lead your business to pursue alternative dispute resolution as required by your agreement or file a lawsuit to recover payment.
Scenario 3: Substandard or Defective Performance
A breach of contract may occur when a party delivers goods or services but delivers a defective product or performs substandard work. For example, a contractor may perform faulty construction work, or a manufacturer may deliver defective or low-quality products that do not meet contractual specifications or that breach the implied warranties of merchantability, suitability, or fitness for a particular purpose.
When a counterparty delivers substandard performance, your business should document the defects in the goods or work and request corrective action in writing from the counterparty. Your company should also review your agreement to determine what remedies you may have, such as the right to a refund or replacement goods, or the ability to pursue compensation in arbitration or court.
Scenario 4: Violation of Restrictive Covenants
A business contract may contain restrictive covenants like confidentiality/non-disclosure provisions or non-compete agreements. A counterparty may breach its obligations by disclosing your business’s proprietary information or by using information gained from your contractual relationship to unfairly compete against your company (such as by infringing your IP to create a competing product or service).
When a party breaches its restrictive covenants to your business, you should gather evidence of the violation and issue a cease-and-desist letter. Should the violations continue, your company might pursue injunctive relief in court.
Scenario 5: Wrongful Termination
Finally, a party may breach a business contract when they repudiate their contractual obligations or purport to terminate the agreement when its terms do not permit termination. When a counterparty refuses to continue performing under your contract, your business should review the termination provisions to confirm whether they have the right to back out of the contract and document your losses.
Contact a Business Law Attorney Today
If a counterparty violates the terms of your contractual agreement, pursuing a breach of contract claim may help secure a favorable resolution to the dispute. Contact Brick Business Law, P.A., today for a free, no-obligation consultation with a business litigation lawyer to learn more about how we can help protect your rights and interests.
