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Understand breach of contract and your potential liabilities

If you fail to live up to the terms of a business contract, or “breach” it, does that relieve the other person in the contract from his or her end of the deal? The answer is more complicated than most people think.

How do you define breach of contract?

If you make a business agreement with another party, any failure to meet the terms of those agreements — no matter how small — is considered a contract breach.

There is the possibility that your failure to meet the contract’s terms, while small, could void the contract and relieve the other party from having to fulfill his or her end of the agreement. It could also open you up to a civil lawsuit for damages if the contract breach damaged the other party financially.

Do the small details really matter?

That’s a question that is better answered by an attorney on a case-by-case basis. Sometimes a seemingly small detail isn’t material to the contract. Other times, that small detail can mean a big difference to the other person or business involved.

In general, the only contract breaches that count in a courtroom are those that are deemed “material.” If the failure to meet the contract’s terms caused a domino effect that somehow damaged the other party, then that failure is material — no matter how trivial it seems on the surface.

For example, suppose that your contract specifically states that you have to deliver 1,000 widgets to your buyer before noon on a certain date, and your delivery driver is late by a couple of hours. Is that breach really material?

If your customer claims that his or her buyer for those widgets walked off when they weren’t there for pick-up at noon and then gave the company a bad online review for being unreliable — damaging both the company’s revenues and reputation — that’s a material issue.

On the other hand, if the widgets are just regularly stocked items that need to put on the shelves, you may have inconvenienced your buyer but it isn’t a material breach. Your client might grumble, but would still likely have to hold up his or her end of the agreement (paying you for the widgets).

If you’re involved in an issue involving a contract breach, protect yourself, and talk to an attorney today.

Source: FIndLaw, “Breach of Contract and Lawsuits,” accessed Oct. 25, 2017