What happens when a party breaches a business contract?

Contracts are often the backbone of professional relationships, whether they are between employer and employee or partners developing new buildings. When parties are clear in the expectations of the relationship and follow through with their agreements, everyone can benefit.

However, this doesn't always happen. There are situations when a party breaches -- or is accused of breaching -- a contract. Should this happen, a legal dispute can arise putting the end product and the relationship in jeopardy. If you are in a situation involving an alleged breach of contract, you should understand a few basic elements about these claims.

Having a contract in place

In order for a contract to be breached, there must be in place a valid, enforceable contract. Parties could defend against a breach of contract claim by arguing that there was no contract to breach, therefore, there are no legal penalties for their action (or inaction). 

Showing evidence of a breach

Breaching a contract means that a party fails to perform one or more elements of the contract. However, it is important to understand that not all breaches are the same.

Minor breaches are breaches that don't affect the performance of the contract. Material breaches, on the other hand, are breaches that significantly affect the outcome, performance or services established in the contract. A party accused of material breach of contract can face numerous penalties.

Finding a solution

In cases involving a material breach of contract, parties need to take legal action to address and resolve the issue through mediation, arbitration and/or litigation. Depending on the details of the case, the resolution could include:

  • Cancellation of the contract
  • Enforcement of the contract, requiring the breaching party to fulfill the terms of the contract
  • Payment of financial damages to non-breaching party

Contract breaches can lead to costly delays, disputes and performance issues so it is important that parties deal with them promptly and with legal support.

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