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Understanding breach of contract

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As a Florida business owner, you and your company have many contracts with people such as customers, suppliers, vendors, distributors, lessors, lessees, and a host of others. You also have contracts, whether written or verbal, with your employees.

Contracts are a way of life for virtually all businesses, and if one of them is breached, it can cause you substantial hardship in terms of lost revenue, lost time, lost productivity and lost opportunities.

It goes without saying that you can enforce a written contract much more easily than you can a verbal one. That is because a well-written contract spells out what each party agrees to do. Many contracts also often specify how, when and the manner in which each party is to fulfill his or her part of the agreement. If one party fails to perform, the other party can sue him or her for breach of contract.

Two types of breaches

Depending on the complexity of any given contract, both you and the other party may have many ways in which you can inadvertently breach it. Not all breaches, however, are of equal importance. A reasonably inconsequential breach that does not affect the overall performance of the contract is an immaterial breach. A material breach, on the other hand, is a serious one that could void the entire contract.

Even more confusing, a breach may be immaterial in some circumstances and material in others. Suppose, for instance, that you have a contract with a supplier who agreed to deliver 1,000 widgets to you on a certain date. Now suppose that (s)he calls you in a panic the day before the scheduled delivery and announces that (s)he will be two days late. Not taking into consideration the reasons (s)he gives for the delay, does this constitute a material breach of your contract or only an immaterial one? The answer to that question depends on the extent, if any, to which you will sustain damages as a result of the late delivery.

If widgets are simply part of your ongoing inventory, you still have a few in stock, and your purpose in ordering 1,000 more was to replenish your dwindling supply, receiving them two days late is not likely to harm your business. Thus your supplier's breach is immaterial.

"Time is of the essence"

Now suppose that you ordered the 1,000 widgets so as to have a large supply on hand at the beginning of your annual widget sales event. If you made your supplier aware of when this upcoming event would take place, either in the contract itself or in a subsequent email, now you have a time-is-of-the-essence situation, and your supplier's breach of contract definitely is material.

Your business stands to lose, and likely will lose, substantial revenue because you cannot sell widgets that you do not have. Your annual sales event has been irreparably damaged, as has your reputation as an honest and ethical business owner. Your supplier has put himself or herself at risk for having to pay you significant monetary damages if you prevail in the lawsuit you surely will file.

Breach of contract is a serious matter that carries serious consequences. For your own protection, always draft the best possible contracts and never sign one without fully understanding exactly what you are agreeing to do.

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