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Understanding breach of contract

If you own and operate a business, it is likely that you enter contracts often. A contract is an oral or written agreement between two parties. For a contract to be valid, it must have the following essential elements:

  1. An offer and an acceptance
  2. The desire of both parties to make for obligatory relations,
  3. A consideration as payment for the promise made
  4. Both parties are legally empowered to act
  5. The consent of both parties is sincere
  6. The agreement meets the legal conditions of a contract

What is breach of contract?

Breach of contract occurs when a party to a contract does not fulfill certain obligations imposed by the contract. For example, a concrete manufacturer delivers a batch of concrete to a construction site later than agree to.

Because of the delay, the general contractor incurs the costs of idle crews who wait for the delivery. This failure is known as a contract breach. Written contracts are easier to enforce than oral contracts as there is a written record of the details. So, what steps can a company take if it believes a contract has been breached? Breaches include:

• Failure to perform as promised

• Creating a situation that makes it impossible for another party to perform as promised

• Publicizing there is no intention to perform

Breach of contract remedies

When a contract has been breached, there are things that can be done to resolve the dispute. Most companies do not want the hassle of a lawsuit and work with each other to find a solution outside the courtroom. This can be done by informal negotiations.

Some contracts that seek to curb lawsuits call for binding arbitration or mediation to resolve the dispute. These options are out-of-court and known as alternative dispute resolution. When all else fails, a party to a breached contract can sue to have the breached fixed. Remedies include:

1. Damages – this means that the breaching party makes payment to the non-breaching party

2. Specific Performance – mandates the breaching party perform as required by the contract

3. Cancellation and Restitution - allows the non-breaching party to cancel the contract and sue for restitution

Many states require that in order to sue for breach of contract the original contract must be in writing. When the facts are simple and the amount small, many businesses prefer going to small claims court. However, for some contract disputes, there are multi-million dollars at stake and disputes may be best served in court. Hiring an experienced business attorney can protect your interests if you or your company find itself in a breach of contract situation.

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