All Good Things Come To An End (Part I):  Someone Breaches Their Contract With You

4 steps prior to deciding whether going to Court is the right move for you and your small business.

All contracts come to an end (even the great ones). Some end on their terms, some are lawfully terminated, and others are breached.  When a contract is breached it is often unexpected, frustrating, and threatening to a business that may not have seen it coming. While a textbook or two could be written on what happens next, this article hones in on the top 4 actions you should take in the immediate aftermath of a breach to minimize the disruption to your business. While many people’s instinct is to run to Court in this situation, that is rarely the right answer.  Litigation is costly, risky, time-consuming, and rarely addresses your business needs during the time you are waiting for a decision from the Court.

For these reasons, I strongly recommend working through these 4 steps and only then making an educated decision about whether going to Court is the right move for you and your business.

1) Find out what happened.

• The first step should always be to find out what happened.  Why did the other party to your contract decide it couldn’t continue performing?
• Were the terms not right for it anymore?
• Did something better come along?
• Did something else happen in the business or in someone’s personal life that makes it hard for it to continue performing?

There are countless reasons why a contract is breached and your response should take into account what those reasons are. If you have a direct line of communication with the breaching party, the best way to get this information is often to ask, but if that is not working you may have to get creative and collect the necessary  information by other means.  This information will be helpful in a negotiation as well as a litigation, if you end up there.  2) Explore alternatives with the breaching party. Once you have determined as much as you can about the reason for the breach, it’s time to explore your options. This process should be as creative as possible and the goal is to identify as many possible solutions that address the breaching party’s concerns while conserving your own interests.  Solutions can be all over the map. If continuation of the relationship is an important factor, you may want to consider altering the terms of the agreement (temporarily or permanently) in order to preserve the relationship. If the continuation of the relationship is no longer of interest then you might want to find a way to ensure an orderly wind-down of the relationship or assistance in transitioning the contract to another party with the breaching party’s assistance. If you are having trouble communicating with the breaching party or generating creative options for resolution, consider reaching out to professional who might be able to help, such as a mediator. A great mediator can facilitate a discussion between you and the breaching party that you might not be able to engage in directly, they can help you identify your interests in the negotiation, and help generate alternative solutions that you might not have otherwise thought about. 3) Mitigate your harm. It is important that you take immediate action to minimize your harm as a result of the breach. This is important for business and legal reasons.  Damage control is essential for your business and if things are not looking good for reaching a solution with the breaching party, you will have to take reasonable steps to protect your business. On the business side:  this is essential to ensure the health of your business and its ability to survive the impact of the breach. On the legal side:  this is a legal requirement that could impact your recovery on a successful breach of contract claim in Court.  In short, don’t rely on the Court or the other party to make you whole.  Do your best to minimize the harm for legal and business reasons. 4) Explore your legal options. Last but not least, make sure you find an experienced commercial or business litigation attorney to advise you and possibly represent you in connection with a breach of contract claim. A business litigation lawyer will be able to assess the strengths and weaknesses of your contract, take stock of the facts relating to the breach, and give you an analysis of how those facts will be analyzed by the court in light of the wording of the contract and the governing law. Even if you learn that your breach of contract claim is not a slam dunk, make sure your attorney also considers alternative claims and gives you a detailed sense of the costs, risks, delays, and likelihood of success of your breach of contract claim in a court of law. As an experienced business advisor, mediator, and litigation attorney, it is not until you have completed all four of the steps detailed here that I would typically recommend commencing litigation to recover for a breach of contract. There are always exceptions of course, including when the breach causes a need for relief that will cause irreparable harm if not immediately addressed.

Related articles:

Four Strategies For Breaking The Impasse In Negotiations

What Are the Basic Boiler Plate Provisions of Contracts?