Contracts play a crucial role in most business operations. They help control costs and ensure that organizations have the materials and services necessary to function efficiently. Most companies protect themselves by signing contracts with employees, vendors and even customers. Companies can often count on a specific amount of revenue and an appropriate amount of operational support if they have signed contracts with other businesses or professionals.
The vast majority of contracts lead to satisfactory performance from the parties that agree to certain terms. However, a small percentage of contracts result in allegations of a significant contract breach.
How can businesses address contract breaches that could result in operational consequences?
With verification and communication
The first stage in resolving a contract dispute involved verifying the terms of an agreement and that a breach actually occurred. In some cases, businesses may decide to take preemptive action over an anticipatory breach, but they typically need strong justification to take legal action over an anticipatory contract breach. After verifying the breach of contract, one party may then send notice to the other of the issue. Sometimes, formal communication is enough to push a party that violated the contract into compliance. Other times, the affected party may need to take additional action.
With a civil lawsuit
If the party in breach of the contract is not quick to resolve the issue, then it may be necessary to take them to court. Contract litigation can lead to a variety of solutions for breaches of contract. For example, a judge can award damages when the breach of contract has triggered economic consequences. Judges may also invalidate the contract in some cases, eliminating any future obligations that either party has to the other. Finally, a judge could also potentially enforce the terms of the contract by issuing an order of specific performance. The judge can tell one party to fulfill contractual obligations. Sometimes, the risk of a lawsuit is enough to motivate the party in breach of a contract to remedy the situation. Other times, a judge is the only one capable of compelling them to correct the issue.
Knowing what steps to take can eliminate much of the confusion and frustration inherent in a breach of contract issue. Business owners and executives who prioritize prompt contract enforcement can potentially limit the negative impact that the failings of others may have on an organization.