Every company relies upon contracts to state the terms of agreements with partners, customers, vendors and others involved. Valid contracts involve deadlines, costs, goods and services provided, and what happens if one party doesn’t meet the terms of the agreement. These agreements enable a business to confidently sign other contracts, knowing that it has made all the arrangements for raw materials, shipping and other details to provide deliverables. It’s all interconnected.
If there is a breach, it can impact a business’s revenue and reputation. A vendor’s late delivery of materials can lead to subsequent late delivery of products, which can involve penalties. One breach can have a cascading effect of multiple breaches.
Taking them to court
Unless there was fraud or other illegal activity, business litigation is a civil law issue where plaintiffs seek to hold the defendant accountable for the harm caused by the breach. Damages can include:
Money: Financial damages are a common remedy when filing a complaint with the courts. It could be money owed for services or goods sold by the plaintiff. Plaintiffs can also seek money for punitive damages caused by harm to the plaintiff’s reputation. Finally, those asking for money typically include their attorney’s fees in the settlement.
Terminating the contract: The conditions surrounding the breach may be such that the plaintiff wants to end all legal obligations. In this situation, there may be no ill intent, but the defendant cannot honor the terms, perhaps for reasons beyond their control. Termination enables to plaintiff to seek others to fulfill the need the defendant was unable to keep.
Honor the contract: The judge may rule that a legal agreement binds the defendant and that they must still honor its terms. Failure to meet the obligation after the ruling can lead to contempt of court, which can mean fines or criminal charges. It may be a matter where the defendant must honor the contract and pay damages.
Return the assets: It may be a matter where the defendant signed a contract and took delivery of assets but could not make some payments. The plaintiff may seek to have all of the remaining assets returned.
Litigation offers many benefits
Well-written contracts will typically include steps for remedying a breach. It likely will involve arbitration or mediation if the two sides cannot resolve the matter amicably. Still, these legal formats can drag on if one side believes the other will give up. These formats also may seek a middle ground or compromise. Those interested in the closure provided by a ruling or holding the defendant accountable may find litigation more desirable. Litigating also sets a precedent, signaling to others that the business is willing to litigate if the other party breaches the contract. Many find litigation desirable for these and other reasons.