Part 2: The Most Common Lawsuits Filed Against Small Business Owners- #5- Breach of Contract
Breach of contract means just that; a contract has been “breached” or broken. There are varying degrees of breach ranging anywhere from no performance at all to some/minimal performance.
Lets break the concepts down to their most basic elements and examine them further. There are two common forms of breach; anticipatory breach and actual breach.
I like to call this one the “Head’s Up” Breach of Contract. Essentially an anticipatory breach happens when one party to a contract gives notice to the other party ahead of time that they do not intend to fulfill their part of the bargain. Examples of an anticipatory breach of contract would be a wedding photographer who, 10 days prior to the wedding, alerts her clients she will not be able to attend the wedding and take pictures as planned.
Another example might be a band that has a contract with a nightclub to perform on a certain day but gives notice to the nightclub owner the day before they will not be appearing. Now, there could be reasons for these breaches, such as illness or travel delays, and the intent may not be malicious. However, regardless of the reason, when a contract is breached, one party may feel somehow wronged. If the original contract between the two parties did not account for anticipated “allowed” breaches, such as acts of God or illness, a small business owner may be on the hook for substantial damages.
Let’s call this one, the “No- Show”. Whatever one of the parties was supposed to do, it flat out didn’t happen. Let’s imagine you own a commercial cleaning service and contracted with another business to clean their corporate offices. Now let’s say your cleaning crew never showed up to perform the service. Actual Breach. Let’s use the wedding photographer example again but this time let’s assume she didn’t show up to take pictures at the wedding and offered no heads up to the couple beforehand. Actual Breach. Let’s pretend you sell shirts on line and you took a client’s money but never mailed them the garment? You guessed it, Actual Breach.
Of course, like all things in life, things are rarely black and white. Often services and cash are exchanged between business owners and clients, but the perceived breach is more a matter of opinion. Perhaps a client purchases floral centerpieces for their event but when they arrive on the big day, the client feels they are substandard to what was contracted and paid for. This interesting scenario leads us to the varying degrees of breach-Minor Breach vs. Material Breach.
Minor Breaches of Contract
Minor Breaches of Contract are just that- ultimately the business owner delivered on the contract, but some of the specifics in the contract were overlooked. In the case of our florist example above, the florist delivered the correct number of center pieces. The centerpieces contained the exact flower (roses) requested by the client. However, the roses were red instead of pink as specified in the contract. (Minor Breach)
Material Breach of Contract
Material Breach of Contract would mean that the client has ended up with an outcome very different than what they contracted for. Looking again at our florist scenario, the centerpieces arrive for the event but instead of elegant, long stem pink roses as indicated in the contract, the centerpieces consist of small haystacks with sunflowers and pumpkins sticking out of them. Dramatically different outcome than what the client signed a contract for.
Ultimately the best way for a small business owner to protect themselves from a breach of contract lawsuit is to have a good contract in place to use when taking on new clients in the first place. Well drafted contracts will take possible breaches into consideration and speak specifically to your business’s products or services. A well drafted contract will also clearly define the services and products you are planning to deliver and manage the client’s expectations accordingly.
Has your business been named in a breach of contract lawsuit? Maybe you haven’t been sued yet-but your business is using boiler plate, generic contracts that were downloaded for free on line? Perhaps you had a non-lawyer draft your business’s contracts for you? Its worth the time and minimal cost to have your contracts reviewed by an actual lawyer with your specific business in mind. A little law now could save you from a breach of contract claim in the future!
Contact us or give us a call at 505.715.5700 today to help you with a breach of contract lawsuit or to review/draft contracts for your business.