What to Do if a Company Breaks a Contract

Businesses are parties to many types of contracts. You enter into a contract when you hire a new employee, acquire a small-business loan or open a merchant services account. Contracts protect the parties involved by setting rules and guidelines. When one party does not satisfy the contract terms, it is considered a breach of contract. If a company breaks a contract with you, your business has several ways to make it comply.

Identify the Breach

1. If you suspect a company broke its legal obligation to you, you should first identify the breach. Review the terms of the contract to determine what the company was required to do and identify where it failed to perform. For example, if an agreement states that a vendor must deliver merchandise by a specified date, he must do so. If the vendor is consistently late or the merchandise does not meet your requirements, the vendor is in breach of contract. Pinpointing the breach sets the legal groundwork to demand compliance.

Demand Letter

1. A demand letter is a request to settle a claim. Businesses often send demand letters before filing a lawsuit to resolve disputes. Sending a demand letter is an inexpensive alternative to court if a company breaks a contract. The demand letter should be brief and concise. It should provide an overview of the organization's breach and remind the company of its obligation under the contract. Politely inform the company that defending a dispute in court will be time consuming and expensive and could possibly hurt its reputation. Specify how you want the matter resolved to avoid taking the company to court.

Mediation

1. If a company breaks a contract, a mediator can help resolve the matter. Mediation is a form of alternative dispute resolution that doesn't involve the courts. During mediation, an objective third party, the mediator, meets with you and a representative of the company to discuss the terms of the contract. The mediator helps facilitate a discussion while remaining neutral and focusing primarily on the facts. The goal of mediation is to find common ground between the parties and ensure everyone involved receives a fair resolution.

File a Lawsuit

1. Lawsuits are a common method of resolving contract issues. If a company breaks a contract and all attempts to resolve the matter out of court fail, the next option is to file a lawsuit and let a judge resolve the matter. If you take the company to court and win, the judgment entitles you to certain remedies. Money damages, for example, compensate you and your organization financially for the breach. A judge may award the entire amount that was lost due to the breach or only the amount it would take to complete the job. A judge may also require that the company fulfill its contractual obligation by completing the job or service according to the terms of the contract.