I am happy to announce that I will be working with Docracy and The Greenhouse Innovation Hub to bring you a special seminar on Contracts Law here in Honolulu, Hawaii to be hosted at The Greenhouse Innovation Hub. The seminar is tentatively scheduled for July 11th at 6-7pm with a representative from Docracy streaming live from New York. We will be talking about what Docracy can do for your agreements and I will be talking about basics of contract law.
Check back on my blog and The Greenhouse Innovation Hub’s calendar for details.
As today’s Draw the Law continues the theme of discussing contracts, I wanted to get to talk about what business people care when they engage a business attorney. Today’s post is about contract disputes, and what is a breach of contract. I will follow-up about suing on contract, sending nasty letters, and getting damages in the weeks forthcoming.
Let’s Get the Lingo Right: What are Ways to Breach a Contract
Generally, when you want to end a business deal it is because of a number reasons: (a) you don’t like the other side and want to end the relationship; (b) you are frustrated because what you bargained for is not happening; or (c) a better business deal has arisen and you only have so much time. If you do not live up to what was agreed upon in the contract you would be in breach of contract or default. Breaches come up in 3 ways: (1) failure to perform; (2) making performance impossible; and (3) repudiation.
Failure to Perform
Sometimes you simply cannot live up to what was bargained for. For example, let’s say you said you would deliver a box of slippers to a retailer early next week. It would be a material breach if you never supplied the slippers. In addition, you would be in material breach if you kept promising to deliver the box soon, and a month went by.
Not performing or constantly delaying something are grounds for material breach. We all expect performance to be done within a “reasonable” time based on the terms of the agreement.
“Time is of the Essence”
Many contracts put in a “time of the essence” clause. The function of this clause is meant to make the timing of performance a central part of the agreement. Therefore, if performance is not done in a timely manner you would be in default.
Partial Performance, Partial Breach
Sometimes, a written agreement is comprised of multiple contracts, with multiple parts. It is sometimes possible to perform on some of those contracts, and completely fail to do others. Using our example, let’s say you are to do multiple deliveries of boxes of slippers, and they are to be delivered the first of every month, but you make several deliveries after the first. You would likely have to pay to the retailer the cost of the times you were delayed in delivering, and not for the times you performed.
Making Things Impossible
Speaking of timing, sometimes you set a specific time for someone to perform. Continuing with our example, let’s say the retailer told you to deliver the boxes on Sundays. However, they forgot that they are closed on Sundays and forgot to send someone to open the store. They would be in breach because they made it impossible for you to deliver. The retailer would you the cost of sending the delivery truck down and possibly the lost of the sale if you could have sold the box to another retailer.
If the contract says “Deliver by Sunday” and the store owner has closed up shop, the supplier has grounds for saying there was a breach because the store owner made it impossible to deliver.
Finally, the last type of breach is a clear statement by one party that it will not be performing under the terms of the contract because it cannot or will not. Once again, let’s say you have to deliver your box of slippers to the retailer, but you get a call in the day before that a second retailer will pay you significantly more for the box of slippers. You then send an email to the original retailer telling them that you decided to sell their shipment to someone else. This email is your repudiation. Please note a repudiation is different than a disagreement as to the meaning of contract term’s.
If the slipper supplier sold the box of slippers meant for the retailer BLUE to retailer GREEN, and let’s BLUE know in an email. The email serves as a repudiation of the contract. Likely there will be consequences for this type of breach.
Breaching a contract does not mean you will go to jail. It is not illegal. The government goes after you if you break safety laws. Trespassing on someone’s property gives them a right to sue you, they don’t need a contract to go after you. However, remember last week,where I talked about the difference between property and contract law, understand that the nonbreaching party is only given rights to go after the other side based on what is in the contract.
In addition, breaking a contract can be costly based on the value of the deal, what the terms of the contract are, and how you handle the outcome. In coming weeks I will talk about seeking alternatives to dealing with a breach and the question you all like to ask your attorney, “what damages can I sue them for?”
[author] [author_image timthumb=’on’]http://www.alohastartups.com/wp-content/uploads/2011/09/RyanKHew.png[/author_image] [author_info]I am a practicing attorney in Honolulu, HI helping small businesses with their transactional and compliance needs. Contact Me Today: Web| 808.944.8400 @RKHewEsq Ryan K. Hew, Attorney At Law[/author_info] [/author]
*Disclaimer: This post discusses general legal issues, but does not constitute legal advice in any respect. No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction. Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.