When individuals or entities fail to fulfill their duties or abuse their authority, businesses can take legal action against them. There are different types of breaches, and determining which type applies to a particular situation can be tricky without the appropriate guidance.
Two types of breaches that are often confused with one another are breach of contract and breach of fiduciary duty. A breach of contract may not involve a breach of fiduciary duty. However, a breach of fiduciary duty generally includes at least one breach of contract. Let’s take a brief look at both.
Breach of contract
A breach of contract occurs when any party to a legally binding agreement fails to fulfill at least one of its terms. This often involves failing to finish a project on time, deliver a product or make the agreed-upon payment by the due date.
A well-written contract allows for exceptions when necessary. This is often done with a force majeure clause that provides relief from litigation if there’s an unforeseeable event, like a hurricane, that makes it impossible to abide by the stated deadline or a sudden and unexpected increase in prices that raises the cost of a project.
Breach of fiduciary duty
For someone to be guilty of a breach of fiduciary duty, there has to be a legally recognized relationship that requires them to act in the best interests of another party to a contract or a larger entity.
People and business entities that are named executors or trustees in an estate plan, for example, have a fiduciary duty to the estate and beneficiaries. Business partners have a fiduciary duty to their fellow partner(s) and the business itself.
Breaches of this duty often involve someone engaging in “self-dealing,” or making money at the expense of those to whom they have a fiduciary duty. Negligence and incompetence can also potentially constitute a breach of fiduciary duty.
To prevail in a legal action involving either of these breaches, a plaintiff needs to show that they suffered or are likely to suffer financial harm. The longer a breach remains unknown or is ignored, the more damage the breaching party is likely to do. That’s why it’s critical to get experienced legal guidance as soon as possible.
