If you know your business won’t be able to fulfill a contract, the time to act is now: before you breach the contract. The more proactive you are with damage control, the more options you’ll have. Start with the three questions below.
1. What Are My Responsibilities Under the Contract?
Pull out the contract and take stock of your obligations. List those you haven’t fulfilled yet, like:
- Payments you must make
- Acts you must perform, like delivering goods or performing services
- Acts you must not perform, like not selling a competing product
- Information you must keep confidential
- Laws, rules, or standards you must comply with
An experienced business attorney can help you interpret contract language and explain your legal rights and obligations.
2. How Close Can I Get To Fulfilling Those Responsibilities?
Divide your list in two: the obligations you can meet, and the ones you can’t. By getting as close as possible to meeting your obligations, you limit your legal liability. Once you’ve completed this step, you’ll have some insight into the consequences of breaching the contract, like damages you might have to pay.
If you haven’t done so already, this is a good time to consult with a business attorney. The attorney can review the contract, help you evaluate your exposure, and offer recommendations to minimize the impact of a breach.
3. Is There a Dispute Resolution Clause in the Contract?
Many contracts have a process for dispute resolution. In most situations, it makes sense to start that process before you breach the contract.
Dispute resolution often has three steps: meet and confer, mediation, and litigation:
- Meet and confer. You and the other parties to the contract meet and try to find a solution.
- Mediation. A neutral third party facilitates a confidential negotiation between you and the other parties. The mediator cannot impose a decision on you.
- Litigation. The other side can sue you. A judge will decide how to solve the problem (unless the parties agree to settle the case). In addition to monetary damages you owe for the breach, if any, you’ll be responsible for your legal fees and costs. If the contract requires it, you might have to pay the other side’s legal fees too.
How Legal Counsel Can Help
The experienced business attorneys at Hendershot Cowart P.C. can help you throughout the process:
- Before the meet and confer, we can help you gather information and prepare for the meeting. Your attorney can come with you to the meeting and help you weigh the other side’s proposals. If you resolve the issue, your attorney can draft a written settlement agreement, so you are protected.
- Most people hire an attorney to represent them during mediation, because the mediator cannot give you legal advice. Your attorney can help you weigh proposed solutions, negotiate more effectively, and draft a written agreement if the mediation is successful.
- If the other side sues you, we can quickly convert the facts of the case into a defense strategy tailored to your budget and objectives.
What Are the Potential Consequences of Breach of Contract Lawsuit in Texas?
Texas law allows parties who prevail in breach of contract claims to be “made whole,” which usually means monetary payment in the form of damages, including:
- General (or direct) damages, which are profits lost on the contract itself.
- Special (also known as consequential or incidental) damages refer to profits lost on other contracts or relationships as a direct result of the breach of the contract.
- Liquidated damages are a reasonable estimate of just compensation when the harm caused by the breach is impossible or difficult to estimate. A provision for these types of damages must be included in the original contract to be considered. These are common in construction contracts, where delays can cause exponential harm.
- Nominal damages, which are – as the name implies – nominal and trivial in amount. Nominal damages are, however, enough to support the recovery of attorney’s fees.
- Attorney’s fees, which may be recovered if the breach is proven and if monetary damages are recovered (even nominal damages).
Exemplary damages, punitive damages, and damages for mental anguish are generally not recoverable in breach of contract matters.
We Help You Protect What You’ve Built
The business attorneys at Hendershot Cowart P.C. help businesses avoid legal problems and solve disputes at the lowest level possible. We can analyze your contract obligations, strategize with you about how to fulfill as many as possible, and help you succeed in the dispute resolution process. And if litigation can’t be avoided, you’ll have an aggressive, experienced advocate at your side.