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Breach of Business Contract

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What Is a Business Contract?

A business contract is a contract that is formed between two business entities, merchants, or persons who have knowledge in the dealing of certain goods. Contracts between two merchants or businesses (between two sellers) can have very different rules than contracts between a merchant and a consumer (seller and buyer) or two individuals. Generally, courts assume that businesses and merchants will have more a more knowledge of the law of contracts. So they give fewer limitations and protections in how they choose to contract with each other.

A business contract can cover a wide range of business operations. Like any contract, business contracts are enforceable by law so long as they contain all the elements of a valid contract (such as offer, acceptance, consideration, signing, etc.). Some business matters that are commonly the subject of a business contract may include:

  • Shipment and delivery of goods;
  • Sale, purchase, or transfer of a business;
  • Construction of business buildings;
  • Short-term joint business ventures; or
  • Long-term agreements (such as deals involving cyclical shipments over many years).

What is a Breach of Contract in a Business setting?

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 many different forms, depending on what the parties have agreed upon in the contract. Some common examples of acts that might be a breach of a business contract are:

  • Failing to make payments for goods;
  • Failing to deliver goods after payment was received;
  • Delivering goods late;
  • Delivering goods in damaged condition;
  • Delivering the wrong goods;
  • Failing to surrender business property after the transfer of a business; or
  • Violating confidential or private business information (such as a trade secret).

A feature of many lawsuits involving breach of a business contract is the idea of “prior business dealings.” In some cases, a breach of contract can be based on the way that the two businesses had conducted business in the past, or conducted business up to the time of breach. These patterns of business interactions are called prior dealings and can serve as the basis for determining what is a breach of contract in this setting.

For example, suppose that Business A had been supplying Business B with 15 inch screws consistently for over 35 years. If Business A suddenly starts providing 20 inch screws instead of 15 inch screws, Business A might be found in breach of contract. The prior business dealings between A and B involved only 15 inch screws and never 20 screws. In fact, Business A might be held liable even if a written contract did not actually specify the size of screw.

In many business deals, the parties may not be using a written contract, especially if they have been dealing with each other for many years. If that’s the case, then the breach would be based on the business’ prior dealings. So, when determining what is breach of contract in a business setting, courts may conduct an in-depth analysis of how the companies interacted over the years.

What Are the Remedies for Breach of a Business Contract?

The remedies available for a breach of a business contract depend on whether the breach can be considered minor or material. If the breach is minor, the court will quantify any losses caused by the breach and provide the non-breaching party compensatory damages. However, if a material breach has occurred, the court may issue an equitable remedy instead. Some examples of equitable remedies include: 

Often equitable remedies are granted only when a monetary award would be insufficient to protect the interests of the party harmed by the breach of contract.

Do I Need a Business Lawyer?

The law governing business contracts is extremely complex. If you believe that a party you are contracting with has failed to meet its obligations, consulting an attorney can help you understand if you may have a claim for damages. A business attorney can help you navigate the terms of your contract, research comparable business standards, and advocate for you in court. They can also help secure your businesses financial interests by aiding you in the negotiation and drafting of future business contracts.

Photo of page author John Kirby

, LegalMatch Legal Writer

Last Modified: 07-17-2017 02:24 PM PDT

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