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Breaching a contract and, in turn, your obligations under the contract can have serious implications. It can damage commercial relationships, tarnish a supplier’s reputation and lead to legal disputes. As such, it is vital that businesses entering contractual relationships understand what a breach of contract is. This article will explore what a breach of contract is and how suppliers can avoid breaching a contract.
What is a Contract?
A contract is a key legal document intended to create legal relations between parties. A commercial contract is a legally binding document that records the terms of the parties’ deal. A contract is often drafted specifically to help protect parties when things go wrong. A well-drafted contract will often be tailored to cover the specific project and mitigate against the risks of what could go wrong.
When negotiating a contract, each party is likely to push to protect their own interests and avoid risk. For example, a supplier of services is likely to build in contractual leeway, which allows them to fix breaches of their obligations under a contract.
Contracts can vary in length and complexity. Naturally, in business, mistakes do happen and can lead to a contract being breached (even if accidentally). When a contract is agreed, it is important that parties follow their obligations to avoid falling in breach of contract.
What is a Breach of Contract?
A breach of contract occurs when a contractual party fails to perform their obligations under a contract.
In a business relationship, unfortunately, a lot can go wrong. However, it is vital to look at the contractual framework between parties in order to determine if a breach of contract has occurred.
Contract disputes can occur for several reasons in business. For example, a customer may allege a breach of contract because they believe a supplier:
- has not delivered products or services on time or at all; or
- there are defects or problems with the products or services received, which fail to comply with what their contract states.
Where one party has breached the contract, the other may have various legal remedies (depending on how the contract is drafted and the nature of the breach). For example, a breach of contract could allow the aggrieved party to the contract to terminate it or bring a legal claim for damages. An aggrieved party may also be entitled to equitable remedies, such as the right to seek an injunction against the breaching party.Continue reading this article below the form
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Instances Where a Breach of Contract Could Occur
A breach of contract could result in various consequences for the breaching party. For example, say a supplier has breached a contract. In this instance, the customer may be able to terminate the contract. The customer may be able to bring a legal claim and take the supplier to court for a contract breach claim, particularly where the breach has caused significant damage and a breach of contract claim has good merits.
Alternatively, the parties could try to resolve the dispute through alternative dispute resolution processes, such as mediation or negotiation. The contract may specify what to do if there is a breach of contract. For example, it may lay out a procedure for the breaching party to remedy their breach. The contract may also specify a procedure to notify a breach of contract or a dispute resolution procedure that the parties must follow.
In practice, breach of contract claims are complicated. They require careful consideration of the contract terms agreed and evidence that a party has failed to comply with their contractual obligations.
Where a party believes a breach of contract has occurred, it will need to review whether there is a valid contract and whether its terms have been breached. If a breach has occurred, the aggrieved party will need to consider how they wish to address it. For example, whether they wish to terminate the agreement, pursue a legal claim for damages or ask the breaching party to remedy the breach and honour their obligations.
Due to the complexity of breach of contract claims, you should always take legal advice if you believe a contract has been breached.
How Can I Avoid Breaching a Contract?
As a supplier, breaching a contract can have very serious implications. As such, you should always work hard to provide strong levels of service and avoid breaching your customer agreements.
Here are some key tips to help avoid the possibility of you inadvertently being in breach of your contractual obligations:
1. Know and Understand Your Contracts Well
It is crucial that your business has a strong and clear understanding of the contract you have signed and what your legal agreement with your customer means in practice. Failing to comply with any of its terms could leave you in breach of your contractual obligations and result in a dispute. Therefore, ensure you read through your contracts to make sure you understand what is expected of you contractually.
2. Keep Track of Your Contractual Obligations
You should keep track of your contractual obligations to ensure you comply with them.
For example, you should document all your action points under a customer contract. If you have agreed specific delivery dates with your customers, make sure you make a note of such dates and tell all relevant staff involved to document those dates to ensure you comply with your contractual commitments.
If you have agreed on something with your customer over the phone, make sure you make a record of it so you remember your obligations and deliver them.
3. Monitor Your Contractual Performance
Contract management is important, to help avoid falling into breach of contract. As a supplier, you should monitor your obligations under the contract and keep your customers updated on progress.
For example, as a supplier, you should:
- monitor which obligations you have complied with under your contract;
- give the customer updates on your progress;
- identify any problems or risk issues that could result in delays under the contract; and
- communicate with the customer about any issues or risks you identify.
Taking proactive steps will help develop strong customer relationships and help prevent you from being in breach of your contractual duties.
Download this free Commercial Contracts Checklist to ensure your contracts will meet your business’ needs.
A breach of contract occurs when a party to a contract fails to comply with their obligations. As a supplier, breaching a contract could result in several negative implications. For example, it could lead to damage in reputation, customers terminating your contract or, in the worst case, bringing a breach of contract claim against you and claiming damages from you. As such, you should take active steps to avoid breaching your contractual obligations. For example, ensure you read your contracts, fully understand your contractual obligations and keep track of them so you are able to fulfil them as per the terms you have agreed.
If you need help determining whether a party to your agreement has breached their contractual obligations or whether you are in breach of a contract, contact our experienced contract lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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