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What If A Business Is In Breach Of Contract?

| Dec 1, 2020 | Firm News

Many owners find they don’t have the revenue stream to continue business relationships with their partners and vendors with so many unforeseen circumstances affecting business operations. A business contract is defined by the obligations of each party that enters into that agreement. Even if the reasons for the business change are out of your control, you might find yourself in breach of that agreement.

Understanding the payment of damages

When a business owner cannot honor a contract with a supplier, distributor, vendor through such contracts as purchase agreements, sales agreements and service contracts, they may find themselves in breach of contract. When a company violates a deal, one of the common remedies may be damages paid out to the other party in the agreement. If the other party is unwilling to engage in alternate dispute resolution, there are some common forms of damage payouts:

Compensatory: These damages pay the non-breaching party as if the breach had not occurred.

Punitive: These payments go beyond what the other party is owed and seeks to punish the party in breach.

Liquidated: An agreement plans these damages for a potential contract breach. 

Drafting future contracts

Businesses may want to consider adding ‘force majeure’ clauses to their contracts. A force majeure clause should be drafted to include the kinds of unforeseen circumstances beyond the typical perils of natural disasters that might make it impossible for a business to fulfill its financial obligations. Many companies have found that current interruptions are not covered by their force majeure clauses, making them consider expanding such clauses for future operations. It is essential both to deal with a breach of contract as it occurs while also planning for your business’s future.  

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