Responding to a Breach of Contract: What Florida Business Owners Need to Know
As a business owner, it is important to know what to do when a vendor, contractor, customer or other party breaches a contract with your company. While an overly aggressive response can unnecessarily jeopardize an important business relationship, failing to act forcefully can invite additional breaches in the future. To ensure that you are making informed decisions with your company’s best interests in mind, you should speak with a Miami breach of contract lawyer before things get out of hand.
When you speak with a lawyer, your lawyer will examine the relevant facts and contract terms to assess your options and help you decide how best to proceed. In most cases, this assessment will focus on three key questions:
- Was it actually a breach?
- What options does your company have to pursue enforcement?
- What remedies are available?
Was It Actually a Breach?
The first and most important issue to consider is whether the act or omission in question truly constitutes a breach of contract. When assessing whether a counterparty’s action (or failure to act) constitutes a breach, there are three primary considerations: (i) whether there is room for interpretation of the relevant contract term(s); (ii) whether the contract exempts the violation from constituting a breach; and, (iii) whether the counterparty has a contractual right to cure.
Contract Interpretation
In many cases, commercial litigation arises out of disagreements regarding contract interpretation. Simply put, one party believes there has been a breach, and the other party does not. As a result, when deciding what to do about an apparent breach of contract, it is critical to carefully review the relevant contract term(s) and determine if there is any room for disagreement over their implications.
Occasionally, there will be no question that one party has breached. For example, if one party provides a service and the other party doesn’t pay on time, this could be a fairly straightforward scenario. But, if there are questions regarding whether the services provided are contractually compliant, or if the contract does not include clear payment terms, even this seemingly straightforward scenario could quickly become much more complicated.
Violations That Don’t Constitute a Breach
Sometimes it will also be necessary to assess whether a violation of the parties’ contract constitutes a breach. One scenario in which this commonly arises is when a party fails to meet a contract’s key performance indicators (KPIs). Oftentimes, parties will agree that failing to meet a KPI doesn’t rise to the level of a breach, but instead either: (i) the KPIs are aspirational only; or, (ii) violations of the KPIs warrant lesser remedies than a breach of contract.
But, even here, questions can arise. For example, does the contract include a provision requiring good faith and fair dealing? If so, does this provision apply in light of the circumstances at hand? Identifying all pertinent contract provisions is critical, and this is an area where an experienced Miami breach of contract lawyer can help.
Contractual Right to Cure
When assessing a potential breach-of-contract claim, it is also necessary to determine whether the counterparty has a contractual right to cure. If so, then an apparent breach may not justify legal action—at least not right away.
For example, it is fairly common for commercial contracts to include grace periods for payment. A payment may be due on a particular date (and interest may begin to accrue immediately upon nonpayment), but the payor might have a 30-day right to cure, or “grace period,” before the payee is entitled to pursue legal action.
What Options Does Your Company Have to Pursue Enforcement?
Assuming that your company is dealing with a breach, the next step is to determine what options your company has available. This also requires a careful look at the relevant contract terms.
Commercial contracts frequently include provisions for mandatory mediation or arbitration (or both). If your company’s contract has one of these clauses, you will need to pursue the relevant form of alternative dispute resolution (ADR)—unless the breach at issue is exempt.
While mandatory ADR clauses are common, it is also common for exceptions to apply. For example, straightforward payment claims are often exempt, as are claims seeking injunctive relief to prevent additional losses. These include claims for breaches of confidentiality, non-competition and non-solicitation covenants, among others.
What Remedies Are Available?
Finally, once you have determined that you have a claim for breach of contract and you know what options your company has available, you will also want to assess what remedies are available. This will tell you whether pursuing enforcement is worth it. In some cases, the available remedies are not limited by contract, and contracting parties can seek full damages, injunctive relief or other appropriate remedies.
But, contract clauses that limit the parties’ potential liability are also fairly common. Commercial contracts often include damages caps, liquidated damages provisions and other limitations that prevent parties from seeking the full remedies to which they would otherwise be entitled. The idea behind these clauses is that they make entering into the contract viable—as accepting unlimited exposure under a contract that only has limited commercial value is often a poor business decision.
Taking all of these considerations into account, business owners should be able to make informed decisions about how to respond to an apparent breach of contract. Then, they can enter into negotiations to resolve the issue informally if desired, or they can pursue mediation, arbitration or litigation if necessary.
Speak with a Miami Breach of Contract Lawyer in Confidence
If you are dealing with a breach of contract and need to know more about the options your company has available, we encourage you to get in touch. We have extensive experience advising companies of all sizes in connection with commercial contract disputes in Florida. To speak with an experienced Miami breach of contract lawyer at Edelboim Liberman in confidence, please call 305-768-9909 or request a confidential initial consultation online today.
