Contracts are an essential part of everyday business and commercial transactions. They define the obligations of the parties, establish expectations, and provide a framework for resolving disagreements.
But what happens when one party fails to do what they agreed to do?
A failure to perform a contractual obligation may amount to a breach of contract, depending on the terms of the agreement and the circumstances of the case. When this happens, the affected party may have legal remedies available.
Knowing what to do if someone breaches a contract can help you protect your interests, preserve important evidence, and determine the most appropriate way to resolve the dispute.
What Is a Breach of Contract?
A breach of contract generally occurs when a party fails to perform an obligation required by a valid contract without a legally recognised justification.
Examples may include:
- Failing to pay for goods or services.
- Failing to deliver goods within the agreed time.
- Refusing to perform an agreed service.
- Supplying goods that do not meet agreed specifications.
- Failing to complete a project as agreed.
- Violating a confidentiality obligation.
- Failing to comply with other material terms of the agreement.
Whether a particular act constitutes a breach depends on the wording of the contract and the circumstances surrounding the transaction.
1. Review the Contract Carefully
The first step in determining what to do if someone breaches a contract is to examine the agreement.
Pay particular attention to:
- The obligations of each party.
- Payment terms.
- Delivery or performance deadlines.
- Conditions that must be satisfied before performance.
- Termination provisions.
- Notice requirements.
- Dispute resolution provisions.
- Clauses dealing with breach and remedies.
A careful review may reveal that the contract itself provides a procedure that must be followed before legal proceedings can be commenced.
2. Gather and Preserve Evidence
If you believe that the other party has breached the contract, preserve all relevant evidence.
This may include:
- The signed contract.
- Invoices and receipts.
- Bank payment records.
- Emails and letters.
- WhatsApp or other relevant communications.
- Delivery documents.
- Photographs.
- Relevant business records.
- Previous notices or demands.
The Evidence Act places the burden of proving asserted facts on the party seeking a judgment based on those facts. Proper documentation can therefore be critical when establishing what was agreed and what went wrong.
3. Communicate With the Other Party
Not every breach needs to immediately become a lawsuit.
Depending on the circumstances, it may be appropriate to contact the other party and explain:
- What contractual obligation has been breached.
- What you expect them to do to remedy the breach.
- The time within which you expect compliance.
- The consequences of continued non-compliance.
Some disputes can be resolved at this stage, particularly where the breach resulted from a misunderstanding, administrative error, or temporary difficulty.
4. Check Whether a Formal Notice Is Required
Some contracts contain specific provisions requiring a party to issue a notice before taking further action.
For example, a contract may require a party to give written notice of default and allow a specified period for the breach to be remedied.
Failure to comply with an applicable contractual requirement may complicate subsequent enforcement. It is therefore important to have the agreement reviewed before taking significant legal steps.
5. Consider Negotiation or Mediation
Litigation is not always the only solution.
Depending on the circumstances, the parties may attempt to resolve the dispute through:
- Negotiation.
- Mediation.
- Arbitration, where applicable.
Alternative dispute resolution can sometimes save time and costs while preserving an ongoing commercial relationship.
This may be particularly valuable where the parties expect to continue doing business with each other.
6. Determine the Appropriate Legal Remedy
If the breach cannot be resolved amicably, the affected party may have legal remedies depending on the nature of the breach, the terms of the contract, and applicable law.
Possible remedies may include:
Damages
A party who suffers loss as a result of a breach may, where legally recoverable, seek damages to compensate for the loss caused by the breach.
The amount and nature of recoverable damages depend on the facts and applicable legal principles.
Specific Performance
In appropriate cases, a court may order a party to perform its contractual obligation rather than simply awarding monetary compensation.
Specific performance is an equitable remedy and is not automatically available in every contractual dispute.
Injunction
In appropriate circumstances, a party may seek an injunction restraining another party from taking a particular action or requiring compliance with an applicable legal obligation.
The availability of an injunction depends on the circumstances and the applicable law and procedural rules.
Rescission or Other Remedies
Depending on the circumstances, other remedies may be available. The appropriate remedy should be determined after considering the contract, the nature of the breach, and the objectives of the affected party.
7. Consider Whether the Contract Can Be Terminated or Rescinded
Rescission generally refers to setting aside or undoing a contract and, where appropriate, restoring the parties to their pre-contractual positions. It is a remedy that may be available in certain circumstances, particularly where the contract was affected by factors such as misrepresentation, fraud, undue influence, or other recognised grounds.
Termination, on the other hand, generally brings the contractual relationship to an end, usually in accordance with the terms of the contract or applicable law. The legal consequences of termination and rescission are not necessarily the same.
Depending on the circumstances, a serious breach may give the innocent party a right to terminate the contract. However, whether a breach is sufficient to justify termination depends on the terms of the agreement and applicable law.
Similarly, rescission is not automatically available simply because one party has breached a contract. The availability and consequences of rescission depend on the circumstances of the particular case and the applicable legal principles.
Before terminating or seeking to rescind an important commercial agreement, it is advisable to obtain legal advice. Wrongfully terminating a contract or pursuing an inappropriate remedy may expose the party taking the action to additional legal consequences.
8. Take Action Without Unnecessary Delay
A party should avoid allowing a contractual dispute to continue indefinitely without obtaining legal advice.
Delay may create practical difficulties, including loss of evidence, deterioration of business relationships, and potential limitation issues.
The applicable limitation period can depend on the nature of the claim and the law governing the transaction. This is one reason why parties should seek advice promptly when a significant contractual dispute arises.
Common Mistakes to Avoid
When dealing with a contractual dispute, avoid:
- Destroying or deleting relevant communications.
- Making threats against the other party.
- Publicly accusing the other party of wrongdoing.
- Signing a new agreement without understanding its consequences.
- Accepting a settlement without obtaining appropriate advice.
- Terminating the contract without checking the agreement.
- Assuming that every breach automatically entitles you to the same remedy.
- Waiting too long before seeking legal advice.
A measured and legally informed response is generally preferable to an emotional reaction.
What If the Other Party Denies the Breach?
A contractual dispute may arise because the parties have different interpretations of their obligations.
In such circumstances, it may be necessary to examine:
- The wording of the contract.
- The circumstances surrounding the agreement.
- The conduct of the parties.
- Relevant correspondence.
- Payment and performance records.
- Applicable law.
Where the dispute cannot be resolved through negotiation or ADR, litigation or arbitration may become necessary, depending on the agreement and the circumstances.
Why You Should Speak to a Lawyer
Contract disputes can become complicated very quickly, particularly where substantial money, property, business interests, or long-term commercial relationships are involved.
A lawyer can help you:
- Review the contract.
- Determine whether a breach has occurred.
- Assess the strength of your claim.
- Identify available remedies.
- Draft appropriate correspondence or notices.
- Negotiate a settlement.
- Commence or defend legal proceedings where necessary.
Obtaining legal advice early can help prevent avoidable mistakes and protect your legal and commercial interests.
How Lexforte Attorneys Can Help
At Lexforte Attorneys, we advise individuals, businesses, companies, and organisations involved in contractual and commercial disputes.
Our services include:
- Contract review and interpretation.
- Contract drafting and negotiation.
- Breach of contract claims.
- Contract enforcement.
- Commercial dispute resolution.
- Mediation and negotiated settlements.
- Arbitration.
- Civil and commercial litigation.
We help clients assess their legal position and develop practical strategies for resolving contractual disputes efficiently.
Conclusion
Knowing what to do if someone breaches a contract is important for protecting your rights and limiting potential losses. The appropriate response will depend on the terms of the contract, the nature of the breach, the losses suffered, and the available legal remedies.
Before taking drastic action, review the contract, preserve relevant evidence, consider whether the dispute can be resolved amicably, and obtain professional legal advice where necessary.
A carefully managed response can sometimes resolve a contractual dispute without litigation. Where litigation or arbitration becomes necessary, proper preparation can significantly improve your ability to protect your interests.
Has a person or business failed to honour a contract with you? Contact Lexforte Attorneys for professional advice on breach of contract, negotiation, dispute resolution, and contract enforcement.