You expect another business to do what it promised. Still, a deadline has passed. Or the work is incomplete. Or the payment you were counting on never arrived. This leaves you wondering what to do when another business does not honor a contract. At that point, your first instinct may be to demand an immediate fix, but taking a moment to step back and take a more methodical approach can actually put you in a much stronger position.
This blog explains 6 steps you should take to address a contract breach and decide whether and when to pursue a more formal remedy.
6 Steps You Should Take When Faced With a Contract Breach
When faced with a contract dispute, start by looking at the situation from every angle. The contract itself, the evidence surrounding the transaction, your communications with the other business, and the remedies available to you can all affect what happens next. A methodical approach can help you protect your position while giving you a clearer understanding of how to resolve the dispute.
The following 6 steps can help you move from anger and frustration to a more organized and profitable response.
Step 1: Read the Entire Contract
Begin with the agreement, attachments, amendments, exhibits, and other documents that are attached to the agreement. Identify the specific promises made by each party, deadlines for performance, payment requirements, delivery requirements, conditions that must be met before a duty is created, and provisions for what happens if one party fails to perform. Be sure to read the notice, default, termination, damages, attorneys’ fees, mediation, arbitration, and litigation sections. A contract may mandate that you provide written notice or allow the other party to fix the issue before you do more. It is also important to see whether the contract supports your interpretation of the dispute. It is easy to get caught up in what you think the other business should be doing. The more important question is what that business agreed to do in writing.
Step 2: Create a Record of the Breach
After learning the relevant obligations, collect information on what has or has not occurred. Never assume an email in your inbox will be easy to locate later or that you will remember it. Gather all communications, invoices, purchase orders, delivery records, and project files. Attach all photos, receipts, meeting minutes, and other documentation related to the agreement. Also interview employees and others involved in the dispute. Ask what they saw or know, and ask them to share any records they might have. The goal is to generate an accurate record that lets a third party, not directly involved in the transaction, understand the dispute without piecing it together from assorted fragments.
Step 3: Allow the Other Business to Respond
Before the conflict escalates, try contacting the other business first. Sometimes a simple phone call or brief email can reveal a misunderstanding, clarify a delay, or provide a practical solution. That does not mean you should make casual accusations or threaten legal action before you know what is going on. Stay focused on the agreement and what was not done. You may find the other business thinks it fulfilled its obligations or that you both disagree on what the contract requires. Even if you are unable to settle the matter informally, you may be able to get a better understanding of the dispute by seeing how the other party reacts to your challenge.
Step 4: Formally Communicate Your Position in Writing
Depending on the contract and circumstances, the next step may be a formal written demand or notice. A well-crafted letter should include the unfulfilled contractual obligation, an explanation of the failure to perform, and what you are asking the other business to do. The letter should also establish a reasonable time frame (if applicable) and include any notice provisions in the agreement. Precision matters here. An ambiguous complaint letter will not do much good, and an unnecessarily aggressive letter will only cause further issues. Your written communication may eventually become part of the record in a lawsuit, mediation, or arbitration. For that reason, it should be factual, focused, and consistent with the position you intend to take if the dispute continues.
Step 5: Determine Whether Mediation or Arbitration is Possible
Not all contract disputes are suitable for the courtroom right away. In fact, your agreement may even stipulate that you must go through mediation or arbitration before you can file a lawsuit. In other cases, the businesses can agree to an alternative dispute-resolution process. Mediation most often involves a neutral third party who encourages the businesses to attempt to reach their own agreement. Arbitration differs because an arbitrator may be empowered to make a decision binding on the parties, depending on the agreement and applicable rules. These processes can sometimes provide a more structured way to resolve a dispute without going through a traditional courtroom proceeding. However, you should not assume that mediation or arbitration is automatically appropriate. Contract language, the nature of the dispute, potential remedies, cost, timing, and other circumstances can all matter.
Step 6: Consider Litigation When All Else Fails
If the other business still refuses to do what you require, then you may need to go to court. A civil action may offer a way to obtain remedies under the contract or applicable law. These remedies can include monetary damages, or in appropriate situations, an order compelling a party to perform a contractual obligation. But litigation is not simply the next step. You should first determine the strength of your contractual position, the evidence you have to support it, the damages you can claim, and the costs and risks of litigation before you do so.
Following the 6 steps above allows you to address the dispute head-on without losing sight of the bigger picture. They also create a clearer foundation for determining whether continued negotiation, alternative dispute resolution, or litigation makes sense for your situation.
How Can an Attorney Help You Evaluate Your Options?
When a business relationship starts breaking down, it can be tempting to move quickly and force the other side to respond. In some situations, prompt action is important. At the same time, moving too quickly without reviewing the contract or preserving evidence can make an already difficult dispute even harder to resolve.
That is where working with seasoned business/corporate law attorneys can be particularly valuable. Instead of approaching the dispute solely from what feels unfair, they will help you review the agreement, the facts, and the potential legal consequences.
Experienced business/corporate law attorneys will help you:
- Review the contract and identify the provisions that might be affecting the dispute. Your attorney can look beyond the basic promises in the agreement and identify provisions concerning performance, payment, default, termination, damages, or other issues that may affect your dispute.
- Evaluate whether the other business has actually failed to satisfy a contractual obligation. A careful review can help distinguish a genuine breach from a mere disagreement about what the contract requires or whether certain conditions have been met.
- Help you organize and preserve relevant documentation and evidence. Emails, invoices, project records, payment information, and other communications may become important later, so preserving them early can help establish what happened.
- Advise you on notice requirements, deadlines, and dispute-resolution provisions. Missing a contractual deadline or failing to provide required notice could affect your ability to pursue certain remedies in the future.
- Help you communicate with the other business in a way that protects your position. Your attorney can help you address the problem clearly while avoiding unnecessary statements that could complicate the dispute later.
- Evaluate whether negotiation, mediation, arbitration, or litigation may be appropriate. Different disputes call for different approaches, and your attorney can help you understand the practical differences among these options.
- Assess potential remedies and the practical costs of pursuing them. You should understand not only what you may be able to recover, but also the time, expense, and other considerations involved in pursuing recovery.
- Create a plan that considers the current issue and your overall business goals. While settling one disagreement is hard enough, you should also consider your company’s future, your company’s long-term interests, and ongoing business relationships.
The most aggressive strategies are not always the best strategies. Depending on the situation, mediation can be a viable option to settle the dispute without litigation. Arbitration can provide a private forum to resolve a more complex dispute, and litigation may be necessary when you want to safeguard your business interests in court. Knowing the differences between these options will help you make an informed decision about what to do next.
Call Nelson Law Group Today!
When a business dispute arises, an experienced attorney in your corner can help you understand what you are facing and what options may be available. The Nelson Law Group, PC brings three decades of experience to every case and can help you evaluate your situation with the practical guidance you need to move forward.
If you have questions about a business dispute or another legal matter, contact the Nelson Law Group to discuss your situation with our knowledgeable staff.
Give us a call today! For more information about Brett A. Nelson, click here.