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Tips to Deal with a Contract Breach: Before, During, and After a Legal Action
Every business forms internal and external contracts right from the start of its journey. Every contract is different owing to its unique contract drafting requisites and the number of parties involved in the contract explains a top provider of contract management services. It is imperative for every party to comply with the terms and conditions mentioned in the contract until the contract reaches maturity.
However, a lot of times, one or more parties break the contract rules, which leads to a breach of contract. So, let’s get started and figure out what exactly is it and what all steps should one take when faced with such a challenge.
Defining a Contract Breach
A contract breach can be defined as any activity which violates the agreed-upon terms and conditions which are mentioned in a contract. This activity can be anything; from failing to deliver a good, which was promised within a specific period of time to paying late against the availed services or products consumed.
A legal contract holds immense importance in the eyes of a court, and if the suffering party is able to prove the other party guilty, legal action is taken against the rule-breaker, resulting in a penalty in the form of compensation, as mentioned in the contract.
Types of a Contract Breach
Every contract breach is different in terms of its severity and complexity. However, some of the most common contract breaches are listed below, which can be related to any type of contract in any part of the world:
1. A Minor Contract Breach: A partial or minor contract breach can be defined as an act that is not intended for any wrongful doing but is not mentioned in the contract.
For example, using a different method to carry out a specific activity like an electrician using a different brand with similar wiring quality, which is not listed in the contract.
2. A Material Contract Breach: A material contract breach can be defined as an activity whose consequences create a significant impact on the other party and the project involved. It is something if the other party had known in advance, it would have never approved and got into a contract.
For example, using a low-quality substitute of a raw or finished product like a builder using low-quality cement instead of a high-quality one as promised in the contract.
3. A Fundamental Contract Breach: A fundamental contract breach can be defined as an activity that results in significant losses to the other party, leading to suing the other party or termination of a contract instead of damage claims.
For example, a delivery service failing to turn up and deliver the product to the customer, resulting in money and reputation loss to the original manufacturer.
4. An Anticipatory Contract Breach: An anticipatory contract breach can be defined as an activity where one party directly communicates with the other party that it will not keep compliance in the future with the terms and conditions mentioned in the contract.
For example, promising online promotion after the final product is made and simply denying the same when the time arrives.
Before a Legal Action
Before availing any expert legal support services, you must be able to prove the following:
• Existence of a Contract: This includes having a copy of the contract in place or some witnesses in front of whom the contract was formed.
• Other Party’s Fault: This includes having proof of breaking the terms and conditions discussed while forming the contract.
• Loss Suffering: This includes having proof of the damages, which incurred as a result of a contract breach by the other party.
The Before Action Letter
This is the first step towards dealing with a contract breach. Before taking legal action, you should write a ‘before action letter’ in the hope of a quick resolution before taking any kind of legal action. The letter should include the following:
• Contract Breach Details: Include the details of the contract, specifying the terms and conditions, and the activity, which led to a contract breach.
• Interest Claim: Include the interest claim in the form of damages against the breach, which are mentioned in the contract.
• Legal Action Time: As per the Civil Procedure Rules, 14-day time should be given to the other party to resolve the matter outside the court.
During a Legal Action
When the other party does not respond within 14-days, the next step is to start preparing for the legal action, which includes taking care of the following:
• Verify whether your claim is a commercial or small claim in your state.
• If your state permits, you may file commercial claims without appointing a business attorney, with a few limitations.
• Take care of the Statute of Limitations, which includes the deadline for taking legal action, since post the deadline, filing the lawsuit might get dismissed.
• Make sure all the communication taking place between you and the other party is covered in a letter or e-mail for written proof of the lawsuit intimation.
After the Legal Action
After the legal action has been taken and successfully executed, make sure the contract breach remedy satisfies you in every sphere, which may include one, some, or all of the following:
• Legal Attorney’s Fees: This includes paying lawyer his/her fees by the party which loses the lawsuit if contract terms or the law allows.
• Liquidated Damages: This includes the amount of all the damages as mentioned in the contract and agreed upon by both parties.
• Consequential Damages: This includes getting additional economic loss amount that was easily foreseeable.
• Nominal Damages: This includes a token or minimal damages’ amount in case of a minor breach.
• Compensatory Damages: This includes getting the entire economic loss amount due to a contract breach.
This brings us to the conclusion that a contract breach results in taking a legal action eventually if one of the parties involved fails to keep compliance with the terms and conditions mentioned in the contract. In any case, hiring a professional attorney is recommended greatly, right from sending out ‘the before action letter’ to filing a lawsuit due to the legal expertise such professionals hold.
Are you looking for expert assistance for legal contract drafting, review and management? Join hands with Cogneesol’s highly dedicated legal team of skilled and experienced professionals who will provide you with unmatched results at affordable rates.
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