A breach of contract can negatively affect an organization in a variety of ways. A construction company failing to begin a project on schedule or complete it according to the proposed timeline can lead to major operational setbacks.
A vendor refusing to deliver materials or increasing their prices despite the terms of an agreement could affect a company’s profit margins or ability to continue operating. Employees who violate their contracts could harm a company by disclosing trade secrets or competing unfairly after leaving their positions.
Contracts exist to protect both parties and make their obligations to one another clear. When contract breaches occur, some organizations ignore the issue, while others may choose to promptly take action in civil court. Organizations may choose to litigate for a variety of reasons, including the three below.
1. Setting a clear example
Contract breaches don’t occur in a vacuum. The response of one party can influence how others behave in the future. Particularly in scenarios where the contract in question is one of many such agreements, ignoring a breach can be a dangerous precedent to set.
Businesses may find that other employees, service providers or vendors assume they can engage in similar misconduct with impunity if the company has not assertively enforced its contracts previously. Organizations that consistently enforce their contracts may benefit from news outlets or other parties discussing their contract enforcement efforts. Others may think twice about violating an agreement when the company has a history of taking prompt access.
2. Incentivizing a settlement
Frequently, breach of contract lawsuits do not actually make it to trial. The defendant responding to the lawsuit decides to settle. They may propose a settlement directly or may agree to undergo negotiations to try to resolve the issue. The possible consequences of litigation can motivate those who have previously violated an agreement to correct issues or attempt to resolve the dispute with the business.
3. Providing valuable recourse
There are several solutions available after a successful breach of contract lawsuit. Judges can enforce penalty clauses or award damages to the plaintiff organization. They can issue injunctions or orders of specific performance. They can also end contractual obligations for both parties.
Reviewing a contract is often the first step toward enforcing it through a breach of contract lawsuit. Businesses that consistently enforce their contracts may minimize the harm caused by contractual violations and may deter others from violating a contract with them in the future.