You've done it--you've found the seed money, have your business plan in place and you are ready to start doing business. Of course you are going to have contracts with all your vendors--you want to ensure you get paid for the work you do and a contract guarantees a legal process for recovery if someone skips out. Or does it?
Without a valid contract you'll have no legal recourse if someone chooses not to honor its terms. It's an essential part of any business transaction. So what happens when you've got the contract--signed and sealed--and someone doesn't uphold their end of the bargain? How do you know whether you can claim a breach of contract--or not?
What do I need to know?
In order to prove breach of contract, you must prove 3 things:
1. That there was a valid contract,
2. That there was a breach,
3. That there were damages.
Let's break each one down:
- There must be a valid contract. In order to create a contract there must be an offer and there must be an acceptance of the offer. For example, if I offer to sell you kitchen cabinets and you accept my offer to do so, we have a contract. Note: A contract does not have to be written to be valid. There must also be something of value exchanged-- in this case cabinets and payment for the cabinets. This is called consideration. Note: Consideration does not have to be money or even something financial. If these three things exist--offer, acceptance and consideration--there is a valid contract
- There must be a breach. If I deliver the cabinets and they are the wrong size, shape or color described in the contract we made, I have breached my contract with you. If I order the cabinets and you refuse to pay for them simply because you don't like them, you have breached your contract with me.
- Damages. This is the most difficult and most essential element to prove. Without it, you have no breach of contract claim. Read that again: Even if the first three elements apply, if you cannot prove damages, you cannot win a breach of contract case. An example? If I deliver the cabinets and they are the wrong size, but you can in turn sell them to someone else for the price you paid -you have no damages. And therefore no case. If, however, you are out your money, the cabinets don't fit and you cannot re-sell them, you do have a case for breach of contract.
A contract breach can feel scary--you can feel like you have lost money or time and have no recourse. Talk with an attorney: With these 3 elements present, you may find recovering your losses is not as difficult as you fear. Sometimes a persuasive letter from a member of the legal community is all that is needed to resolve the issue at hand.