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BFS Capital Blog

Breach of Contract: Why Non-Legal Solutions May Be Best

May 21, 2014

If you’re in business long enough, you may find yourself in some sort of legal dispute—with a vendor, a partner, a competitor or even an employee. Some upfront understanding can help you navigate what could become treacherous waters and ideally, avoid getting into these scrapes in the first place.

The website, Find Law, deals with a variety of legal matters, including those related to small businesses. It’s not a perfect world, the site says, so there are bound to be disputes, especially over contracts. Hence the legal term, breach of contract. If/when you find yourself involved in one, what are your options?

Business contracts include obligations that must be fulfilled by the companies that enter into the agreement. Common ones have to do with payment, delivering merchandise or providing specific services. The terms of the contract are the details of how the obligations are to be fulfilled. When one or the other companies doesn’t meet the terms of the contract (or doesn’t perform at all), this is called a “breach” of the contract.

Once there is a breach, a business owner may try to have the contract enforced or to recover financial losses through legal means. If you’re talking a relatively small amount of money (Usually a few thousand dollars, but this varies across states), you may go to small claims court for resolution.

But—the courts and lawsuits are not the only ways to go. For small businesses, staying out of court is often your best bet. Two common “alternative” approaches: Having a mediator review a dispute; and binding arbitration.

Find Law says that the non-breaching party is probably entitled to some kind of relief, or “remedy.” The main types are damages, specific performance or cancellation and restitution. The remedy used most often is damages, or some form of payment made to the “injured” party that is usually specific to the breach that occurred. Types of damages include compensatory, punitive, and nominal and liquidated. Don’t worry about remembering it all—that’s why there are legal resources, including lawyers, to turn to when you need them. reinforces the idea that taking legal action shouldn’t be among your best first steps when there’s been a breach of contract. The site suggests three common-sense steps you can consider:

    • Get the facts.
      Did someone not perform according to the terms of the contract? And if so, how did that affect you? If you’ve lost money or there was some other economic impact on your business, you probably have a material breach. But everything needs to be proven, including that the other party was responsible for the harm.


    • Reach out.
      What a concept—direct contact and conversation—and one that many feel should be used much more in all kinds of disputes!  Asking that the other fulfill the contract could keep you out of the legal system entirely. Do it quickly, do it by phone and follow up in writing, if necessary. Escalate it in the other company if you need to. You have the best chance of succeeding if this approach is wrapped up in two weeks or less.


    • Get a lawyer.
      You may wonder about taking other actions yourself: Should I start negotiating the terms in hopes of getting something? Wouldn’t it be better to get something rather than nothing? At this point, engage an attorney, who will lay out your options, guide you through next steps and keep you from making things worse!

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