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How does a breach of contract impact a small business?

Contract breaches are obviously bad news for small businesses and individuals. They can waste both money and time, and certainly lead to frustration for everyone involved.

 

At the same time, it's important to note that not all breaches are created equal. In most cases, if you want to move forward with a breach of contract suit, it needs to meet the criteria set by the following four breaches:

  • A minor breach is a partial breach. An example would be a construction company ordering steel girders and those materials showing up a few days late. The order was delivered, but the loss of time could potentially harm the company financially.

  • A material breach is a significant failure to perform one's duties so severe that it undermines the contract itself.

  • Fundamental breaches also often end up in court, a fundamental breach of contract is a breach that significantly damages the other party beyond the original scope of the contract. For example, if a contractor installed improper bolts on a major bridge, and that defect later caused the bridge to collapse, the other party would be entitled to sue for the additional damages.

  • An anticipatory breach allows one person to say the contract is broken when it becomes evident the other party will not fulfil their end of the contract within the allotted time. Let's say your neighbor hires you to paint her house, for example, and she'd liked the job completed by October 1. If you haven't started by September 30, she could try to collect monetary damage because there's no way you could get the job done in time.

 

Regardless of the type of contract breach, you need to establish a few facts to build a credible case should you take the breach to court, and this can get tricky-especially if the contract was verbal or implied. In most breach of contract cases, you must verify that:

  • The contract existed.

  • The contract was broken.

  • You suffered damages.

  • The defendant (person or business you're challenging) was responsible.