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How to Handle a Breach of Contract

Author: Katie Truesdell Date: February 26, 2014

When an offender’s inaction leaves you with problems, the first step to resolution is not in a courtroom.

So there’s been a breach of contract … now what should a small business owner do?

1. Determine the facts.

A small business owner can classify whether there has been an actual breach. Attorney Kristen Hayes Kuse from Pleasanton, Calif., who works solely with small and medium-size businesses, says the most important thing to know is whether someone did not perform according to the contract and how that non-performance affected you. This is considered a material breach. Translation: Did the inaction of the offender cause a loss of money or some kind of economic impact on the business?

If the answer is yes, then you have a material breach, says Kuse, who owns legal consulting company Integrated General Counsel. You may be entitled to sue for damages, but to prevail in court, you would—at minimum—need to verify that a valid contract existed, that it was broken, that harm was caused and that the breaching party was responsible for the harm caused. If any of this information is missing, then it would be difficult to move on with confidence.

2. Reach out to the offender.

But the courtroom is not your next stop. Contact the breaching party and request full compliance with the contract, says Washington, D.C., attorney Thomas Simeone, who has extensive experience working with small businesses on everything from business disputes to contract reviews. “It’s always better to obtain the benefit of the contract without the need for legal action or involvement of a lawyer.”

And contact them quickly, adds Dodie Jacobi, business mentor and owner of DodieJacobi.com in Kansas City, Mo., to minimize investment of time, energy and cost. “Typically, owners delay, hoping the other party will correct the breach without having to be chided,” she says. “But hope is a passive plan that guides others to mediocrity. Immediate contact shows you’re on top of your own company’s performance and expect the other party to match your competence.”

If there is delay after the initial phone call, she recommends following up with a written request, then escalating with a call to the highest authority in the other party’s realm—in total, taking no longer than two weeks for resolution.

3. Seek legal counsel.

If the breach still remains at that point and you meet the criteria mentioned earlier, consult an attorney, who will help you determine the next course of action. 

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