A contract is an agreement between two or more parties – individuals, businesses, or other legal entities – that legally requires the parties to perform or refrain from performing certain acts. A breach of contract occurs when one of the parties performs in a way that is contrary to the contract. When a breach occurs or is alleged to occur, the parties may want to have the contract enforced or may try to recover money for any financial harm caused by the breach of contract. But a breach of contract can hurt your business in more ways than simply financial loss.
The following is a list of the top 10 reasons to avoid breaching a contract.
10. Your Business Reputation: Breaching a contract could damage the reputation of both your business and yourself, as the small business owner, in the business community.
9. Your Business Relationships: Not following through with a contract, or acting in a manner that goes against a contract, can lead the other party to no longer want to do business with you.
8. Lawsuits: A breach of contract can lead to your business being sued.
7. Time Away From Your Business: If sued, you could be forced to spend valuable time away from your business in order to respond to discovery requests, attend depositions, and litigate the matter in court.
6. Legal Fees: Whether your breach leads to a lawsuit, arbitration, or mediation, you could incur significant legal fees while trying to defend your business.
5. Specific Performance: Depending on the nature of the contract, you could be ordered by the court to perform the obligations you had under the contract.
4. Contempt: If the court issues an order and you don't obey it, you could be held in contempt, fined, and/or imprisoned.
3. Compensatory and Consequential Damages: You could be forced to pay compensatory and consequential [money] damages, which is the most common remedy for a breach of contract case. The money damages are usually in the amount that puts the non-breaching party in the position that party would have been had the breach not have occurred.
2. Punitive Damages: Although rare in contract cases, you could be ordered by the court to pay punitive damages, which can be significant amount of money.
1. You Lose All the Way Around: You could end up spending much more money, time, and mental and physical energy resolving the breach of contract than you would have spent performing your obligations under the contract.
Getting Legal Help
One of the best ways to avoid breaching a contract is to consult with an attorney while drafting a contract or before entering into a contract with another person or company. If you have already entered into a contract, you may want to contact an attorney before taking any action that is contrary to your contract. If you have any questions about how to avoid breaching a contract, or contracts in general, you may want to contact a business and commercial law attorney in your area.
For more information related to this topic, you can visit FindLaw's section on Business Contracts and Forms.