To have a better understanding of what it means to breach a business contract, it may be helpful to know exactly what a business contract entails first. A business contract is a contract that is formed between either two business entities, merchants, or persons who have knowledge in the dealing of certain goods.
Contracts that are between two merchants or businesses (i.e., between two sellers) often have very different rules than contracts that involve a merchant and a consumer (i.e., seller and buyer), or two individuals.
Generally, courts assume that businesses and merchants will have a better understanding of the law of contracts. Thus, they will give fewer limitations and protections over how the parties choose to contract with each other.
A business contract can cover a wide range of business operations. Similar to any type of contract, business contracts are enforceable by law so long as they contain all of the elements of a valid contract, such as offer, acceptance, consideration, execution, and so forth.
Some business topics that frequently arise as the subject matter of a business contract may include:
- The shipment and delivery of goods;
- Construction of a business (commercial) building;
- The sale, purchase, or transfer of a business;
- Short-term joint business ventures; and
- Long-term agreements (e.g., deals involving cyclical shipments over a period of many years).
In a business setting, a breach of contract occurs when one of the parties fails to perform their duties as specified in the contract. This can take on a variety of forms that depend on what the parties have actually agreed upon as terms of the contract.
Some common examples of acts that might constitute a breach of a business contract include:
- Failing to make payments for goods;
- Failing to deliver goods after payment was received;
- Delivering the wrong goods;
- Delivering goods late;
- Delivering goods in a damaged condition;
- Failing to surrender business property after the transfer or sale of a business; and
- Violating confidential business information, like a trade secret.
A primary feature of lawsuits that involve the breach of a business contract is the concept of “prior business dealings.” For instance, in some cases, a breach of contract can be based on the way that the two businesses have conducted business in the past, or alternatively, conducted business up to the time of the breach.
These patterns of business interactions are called “prior dealings” and can serve as the basis for determining what can be considered a breach of contract in relation to a particular business scenario.
- As an example, suppose that Business A had been supplying Business B with 15 inch screws on a consistent basis for over 35 years. If Business A suddenly starts to provide 20 inch screws instead of the regular 15 inch screws, Business A might be found to be in breach of their contract.
- The prior business dealings between A and B only ever involved 15 inch screws, not 20 inch ones, which can signify a breach. In fact, Business A can be held liable even if the written contract did not actually specify the size of the screws.
It is not uncommon to find that many business transactions often operate without the use of a contract, especially if the parties have been dealing with each other for many years. If that is the case, then the breach will be based on the business’ prior dealings as demonstrated in the example above.
Therefore, when determining what a breach of contract is within a business setting, a court may conduct an in-depth analysis of how the companies have previously interacted over the years, if at all.
A minor breach, also known as a “partial breach,” occurs when one party has substantially performed the major obligations of the contract, but does not meet a minor condition or term of the contract. In other words, a partial breach is one that does not usually have a significant impact on the contract or its parties.
If a court finds that a party’s breach was only a minor one, then it will determine any losses caused by the breach and provide the non-breaching party with an award of compensatory damages in an amount that makes up for the loss. The parties must still continue to meet the requirements of their contract, otherwise they may be held liable for a material breach.
On the other hand, a material breach is a much more serious violation and will make fulfillment of the contract very difficult or near impossible. If a material breach has happened, the court may issue an equitable remedy instead.
Some examples of equitable remedies include:
Equitable remedies are generally only granted when a monetary award would be insufficient to protect the interests of a party harmed by the breach of a contract.
The law governing business contracts is extremely complex. If you believe that a party you are contracting with has failed to meet its obligations, you should consider contacting a business lawyer.
A business lawyer will be able to determine whether you might have a claim for damages, can research comparable business standards in your area or field, help you navigate the terms of your contract, and provide representation in court, if necessary.
An experienced business lawyer can also help you to secure and protect your business’s financial interests by drafting and reviewing any current or future business contracts, and participating in contract negotiations on behalf of you and your business.