We all sign contracts, sometimes without even thinking about it. If you have a business and you order ink for the photocopier, you've entered into a contract. In exchange for a specific payment, the office supply company will send you black ink in a cartridge. We don't think about these purchases as contracts because most of the time everything goes smoothly: we get the item, pay the bill, and move on. But for business litigation lawyers like us, we see contract breaches all the time involving an assortment of different business relationships, such as:
- Business to business (or vendor) breach of contract;
- business to customer breach of contract;
- business to employee breach of contract; and
- contract breaches among partners or shareholders
A breach of contract occurs when one party to the agreement does not hold up his or her side of the bargain. More specifically, there must be a:
- Valid agreement (e.g. order for ink)
- Material breach (one side fails to do what they promised to do)
- Damage to the non-breaching party
From a financial standpoint to operational trade secrets, businesses rely heavily on these contracts to protect themselves legally from potential losses. But if something does go wrong and a party of the contract does not fulfill their obligation, then it’s valuable to know that experienced legal counsel in contract law is available to help make things right. Back to our ink cartridge example. If you run a printing business, and order 100 cartridges of red ink, pay in advance, and the delivery doesn't arrive, causing you to miss a deadline and lose an important customer, then a breach of contract has occurred. The vendor's failure to comply with the terms of the agreement has damaged your reputation and cost you money.
What can you do if you enter into a contract and the other side breaches? The rule is that you must be "made whole," which generally means a monetary payment. But what if money can't make things right? Then you may be entitled to an equitable remedy.
Equitable Remedies in a Breach of Contract
Rescission is essentially agreeing to a different deal. If one party breaches, the other party is no longer bound by the agreement. But they wouldn't have entered into the agreement in the first place if they didn't have mutual interests. Rescission allows the contract to be tweaked so that both parties want to comply with the terms. For example, if you are a high-rise developer and enter into a construction agreement to build a parking garage for 500 cars and the finished structure only has 400 spaces, you didn't get what you bargained for. If you come to us to sue the contractor and when we reached out to the breaching party, the company offered to provide mini-coopers or smart cars to the first 100 people to buy a condo in your new building, thus alleviating the need for parking spaces, and you agree, we would have a rescission of the old contract.
Another option is to go to court and ask for specific performance, namely that the court order the breaching party to do everything that was promised. For example, a judge would order the construction company to add a level to the garage.
Reformation is a way of clarifying a contract that was based on a misunderstanding, a mistake, or one party's failure to disclose all the relevant information. So if you entered into a contract with the construction company for "hundreds of parking spaces," you might have expected 500 spots, but it was not unreasonable for the company to construct 400. Or perhaps a secretary typed a 400 instead of 500 and no one noticed. Or maybe the construction company knew that 500 spaces wouldn't fit in the available area but wanted the job so it just agreed. In all of those cases, the contract would have to be re-written to 1) clarify the number of spaces 2) correct the typo; or 3) revise the contract to include construction of a satellite lot of 100 spaces, as a way of making sure you don't suffer because the construction company withheld information.
An injunction is a court order that tells a party either to do something or refrain from an action that would be harmful. It is a way of maintaining, or restoring, the status quo. So, if you realized that it would be impossible to build a structure with 500 parking spots, told the construction company to stop working and it didn't, we could ask the court to enjoin any further work until the problem could be solved.
This post just touches on the ways a contract can be breached and what remedies might be available to you should you find yourself the victim of someone else's failure to stick to the terms of a business deal. Please contact our Houston Business Law firm if you feel that a you might be the victim of a contract breach – or if someone is accusing you of not keeping up your end of the bargain.