When Should Business Owners Sue for Breach of Contract?

All businesses deal with contractual relationships in one way or another.

To put it as simply as possible, contracts can be written, oral, or implied by the parties’ conduct.  It’s important to note that, in the eyes of the law, each contract can be treated differently.  Although there are multiple considerations, here are a few fundamental considerations when deciding whether to move forward with a breach-of-contract claim:

1) Did you have a valid contract?

2) Was there a “material” breach?

3) Did you document what happened? and

4) What are your remedies? 

First, was there a valid contract?  A contract has four basic legal elements:

• Offer;
• Acceptance of the offer;
• Intention to create the legal relationship; and
• Consideration (a mutual exchange of promises).

A contract may satisfy each of these four elements to be valid and enforceable, and, of course, a valid contract must exist in order for the breach-of-contract claim to be successful. 

Second, was the breach a “material” one?  In South Dakota, a material breach destroys the contract’s objective.  For example, a party may breach a contract by refusing to deliver materials as agreed upon or by failing to finish a construction project.  To determine whether these breaches were material, one must ask, “What was the essential purpose of the contract?”  If the other party’s actions go against the contract’s essential purpose, it may be wise to consult with an attorney, as the answer to the question whether the breach was material may affect your available rights and remedies.  Of course, all circumstances surrounding the contract must be evaluated to determine the materiality of the breach.

Next, did you document what happened?  Lack of evidence is yet another concern when considering the strength of your breach-of-contract claim. From a defense perspective, businesses need to protect themselves from potentially expensive litigation by keeping track of all circumstances surrounding the contract including: all parties involved; potential witnesses; anything done in writing whether it’s the contract, an email, or text.  But this documentation can also enhance a business’s chance of success if they wish to bring a breach-of-contract claim against another company.  In many cases, a poorly documented case may not be worth its time or expense.

Lastly, what are the possible remedies you have for a breach?  While money damages are the typical remedy for a breach of contract, in certain circumstances, the law recognizes the availability of other remedy.  For example, if a former employee breaches a covenant not to compete, or if you can establish that the breach involves serious, irreparable harm, specific performance may be an available remedy, meaning that the court may order the offending party to either engage or not engage in certain conduct.

Do you want to know what your remedies are, how strong of a case you may have, and whether you should litigate your breach-of-contract claim?  Whether you need advice on a particular claim, need a contract reviewed, or any other concerns about a contract, call an experienced attorney at Goosmann Law Firm in Sioux Falls, Sioux City, or Omaha today.