The terms included in a contract clarify what obligations parties – including businesses – have to one another. Whether a company hires a construction firm to perform work, the contract negotiated governs the business relationship between the two parties.
Typically, those who negotiate business contracts do their best to uphold their commitments. They make timely delivery of goods and materials or act promptly to provide the requisite services to the other party. Occasionally, one party violates the contract. They may fail to deliver materials, may send over the wrong merchandise or may only partially complete an important project. Service outages, production delays and even breaches of confidentiality can all violate the terms of a contract. Those contract violations can cost the other organization money.
How can a business secure proper financial recovery after a significant contract breach?
With careful contract negotiations
The best protections against contract violations should be located in a contract itself. It is common practice for businesses to add penalty clauses for issues such as disruption of service, the failure to deliver goods or delays in payment. Penalty clauses help incentivize contractual compliance and protect businesses against the likely financial losses that may follow a contract breach.
With a contract lawsuit
Perhaps the other party refuses to address the breach or uphold the penalty clause in the contract. Maybe there is no penalty clause, but there are significant financial consequences for the breach that already occurred. It is often possible for a business handling the aftermath of a contract violation to initiate a breach of contract lawsuit.
A breach of contract lawsuit can result in financial compensation for the provable economic damage caused by a contract violation. A Judge can also potentially uphold penalty clauses and require that the other party pay the agreed-upon fees. Judges can even order specific performance in addition to awarding damages. Specific performance forces the other party to fulfill contractual obligations or correct issues that arose because of the breach of contract.
Both the creation of thorough contracts and the choice to pursue necessary business litigation can help protect an organization from financial setbacks related to contract disputes. Taking prompt action when a contract issue arises can help mitigate the harm caused by contract violations.
