Business litigation encompasses a wide range of legal disputes. It is a risk that comes with operating a company. Business disputes can range from Breach of Contract claims to Client complaints. These conflicts are challenging for any business and can drain resources, damage reputations, and derail business objectives.
The first defense is knowing and understanding the potential disputes that can threaten the business. In this Litigation Blog Series titled, “Business Disputes: Mitigate, Mediate, and Safeguard,” we will cover the major disputes that businesses may come across, and steps on how to navigate them.
This post provides an overview of Breach of Contract. Moreso, allegations against a business or business owner for failure to fulfil their obligations under a legal agreement.
Breach of Contract can arise from situations such as:
- Not finishing tasks outlined in the contract on time.
- Not paying as per the terms of the contract once work is completed.
- Not providing services or products that are up to the standards in the contract.
- Only completing part of the task outlined in the contract.
Any number of factors can result in a breach of contract. The following are some of the most common causes:
- Reliance on Third Parties: When one party depends on the performance of a third-party agent to fulfill their obligations, any failure or delay by that agent can result in a breach.
- Poor Communication: Inadequate or unclear communication between the parties involved can lead to misunderstandings, misinterpretations, and, ultimately, a breach of contract.
- Lack of a Contract-Tracking System: Without an effective contract-tracking system in place, important dates, deadlines, and obligations may be overlooked or forgotten, increasing the risk of a breach.
Addressing these potential causes and implementing measures to avoid them can help reduce the likelihood of a breach and ensure smooth contract performance.
Types of Breaches
Disputes can vary depending on the level of the breach.
A breach can be Anticipatory or Actual. An Anticipatory Breach is when the breaching party announces that they will not meet their obligations as stated in the agreement, whereas an Actual Breach is when the party fails to meet their contractual obligations.
Whether Anticipatory or Actual, the degree to which a contract is breached can be Material, or Minor (Partial).
Material Breach: This occurs when a party fails to meet a crucial or fundamental part of the contract severely compromising the purpose of the contract. When there is a Material Breach, the other party has a right to legal recourse and remedies. In addition, a Material Breach may release the other party from fulfilling their contractual obligations as well.
Minor (Partial) Breach: This occurs when a party fails to meet some aspect of the contract that may delay, or somewhat affect the agreement, but ultimately fulfils the purpose of the contract. An example of a minor breach is- delays in delivering promised goods or services.
What Elements Need to be Present to Prove a Breach of Contract?
For a Breach of Contract to have occurred, several elements must be present and the onus of proof falls on the complainant to demonstrate that:
- A contract exists between the two parties
- The plaintiff has fulfilled their obligations of the contract
- The defendant failed to fulfil their obligation or did not meet their obligations as agreed upon
- Defendants’ failure to perform their obligation negatively affected the plaintiff and resulted in damages
- The defendant’s failure to perform caused the damage experienced by the plaintiff
Although the burden of proof lays with the complainant, it is in the defendant’s best interest to work with legal counsel to refute the allegations disproving any or all of the elements.
If you are in the middle of a Breach of Contract dispute, and would like to understand your legal options, please call to speak with our Corporate and Securities Litigation team at 619.298.2880 or email [email protected].
