What Happens When a Business Breaches a Contract in Texas?
Contracts are a fundamental part of doing business. They establish expectations between companies, customers, vendors, partners, contractors, and other parties and help define what each side is required to do.
But what happens when one party does not live up to its obligations?
A breach of contract can range from a relatively minor disagreement to a serious commercial dispute involving significant financial losses. For Texas business owners, understanding what may happen after a contract is breached can help determine whether the problem can be resolved through negotiation or whether legal action may be necessary.
What Is a Breach of Contract in Texas?
A breach of contract generally occurs when a party fails to perform an obligation required by a valid agreement.
Texas courts generally identify four elements of a breach-of-contract claim: the existence of a valid contract, performance or tendered performance by the plaintiff, a breach by the defendant, and damages resulting from that breach.
In a business setting, a potential breach could involve situations such as:
A customer failing to pay for goods or services
A vendor failing to provide goods as agreed
A contractor failing to complete contracted work
A business failing to make a required payment
A party failing to meet an important deadline
A buyer or seller failing to complete a transaction
A business partner violating terms of an agreement
A party failing to perform obligations contained in a purchase and sale agreement
However, simply being unhappy with another party's performance does not automatically mean that a legally actionable breach has occurred. The terms of the agreement and the specific circumstances surrounding the dispute must be evaluated.
Is Every Contract Breach the Same?
No. The seriousness and consequences of a breach can vary considerably.
Some breaches may involve relatively minor issues that can be corrected without significantly affecting the overall agreement. Others may interfere with a central purpose of the contract and result in substantial financial consequences.
Whether a breach is considered significant can affect the rights and obligations of the parties going forward.
For example, a missed deadline that causes no meaningful harm may present a very different legal issue than a party refusing to perform one of the primary obligations required by the agreement.
This is one reason businesses should be cautious about immediately terminating an agreement or refusing their own performance after they believe the other side has breached the contract.
What Should a Business Do After a Contract Is Breached?
Before immediately filing a lawsuit, a business should understand exactly what happened and what the contract requires.
Some important initial steps may include:
Review the Contract
Start with the actual agreement.
Look at the provisions governing the disputed obligation as well as any sections addressing:
Payment
Performance requirements
Deadlines
Default
Notice requirements
Opportunities to cure a breach
Termination
Dispute resolution
Attorney's fees
Governing law
A contract may establish procedures that must be followed before a party takes additional action.
Preserve Important Documentation
Documentation can become extremely important if the disagreement develops into litigation.
Businesses should consider preserving relevant:
Contracts and amendments
Emails
Text messages
Invoices
Purchase orders
Payment records
Account statements
Correspondence between the parties
Records of work performed
Delivery records
Notes regarding conversations or meetings
The evidence surrounding the parties' conduct can be important in determining what happened and whether contractual obligations were satisfied.
Document the Financial Impact
If the breach caused financial losses, maintain records showing those losses.
A business asserting a breach-of-contract claim generally needs to establish that it suffered damages as a result of the alleged breach.
Good financial documentation can therefore become an important part of evaluating a potential claim.
Can You Send a Demand Letter for Breach of Contract?
In some situations, a demand letter may be appropriate before litigation begins.
A demand letter can identify the alleged breach, explain what the business believes is required under the agreement, request payment or performance, and establish a deadline for responding.
Depending on the circumstances, this may create an opportunity to resolve the dispute before filing a lawsuit.
However, businesses should review the contract before sending formal notices. Some agreements contain specific requirements regarding how notice must be provided, where it must be sent, and whether the breaching party must be given an opportunity to correct the problem.
Can a Business Sue for Breach of Contract in Texas?
When a significant contractual dispute cannot be resolved, litigation may become an option.
A breach-of-contract lawsuit may seek to establish that a valid agreement existed, that the plaintiff fulfilled or offered to fulfill its contractual obligations, that the other party breached the agreement, and that the breach resulted in damages.
The facts and contractual language are particularly important in these cases.
A business considering litigation should also evaluate the practical side of pursuing a lawsuit.
The amount in dispute, strength of the evidence, potential defenses, cost of litigation, and ability to recover a judgment can all influence the appropriate strategy.
If a disagreement has developed into a serious commercial dispute, a Dallas commercial litigation attorney can review the contract and circumstances and help determine the available options.
What Damages May Be Available for Breach of Contract?
The damages available in a Texas breach-of-contract case depend on the agreement, the nature of the breach, the losses involved, and applicable law.
In general, contract damages are intended to address losses resulting from the breach rather than automatically punish the breaching party.
The exact amount that may potentially be recovered depends heavily on the circumstances.
Businesses should therefore avoid assuming that every financial problem connected to a dispute will necessarily be recoverable.
Attorney's fees may also be recoverable in certain Texas contract claims, depending on the circumstances and applicable law.
What If the Breach Involves an Unpaid Business Debt?
Some breach-of-contract disputes ultimately become collection matters.
For example, a business may provide goods or services under a contract and fulfill its obligations, only to have the other party refuse to pay.
The first steps may involve reviewing the agreement, invoices, payment history, and communications with the debtor. If ordinary collection efforts are unsuccessful, additional legal action may be considered.
Businesses attempting to recover significant unpaid commercial obligations can learn more about working with a Dallas debt collection attorney.
What If You Are Accused of Breaching a Business Contract?
Not every breach-of-contract allegation is valid.
A business may be accused of violating an agreement even though it believes it complied with the contract or had a legally valid reason for its actions.
A defense may involve questions about:
Whether a valid and enforceable agreement existed
What the contract actually required
Whether the complaining party performed its own obligations
Whether a breach actually occurred
Whether the alleged breach caused the claimed losses
Whether the amount of damages is supported
Whether contractual notice requirements were followed
Whether another contractual provision affects the dispute
Businesses facing substantial breach-of-contract allegations should take them seriously, particularly if a lawsuit has already been filed.
Can a Breach of Contract Dispute Be Settled Without Going to Court?
Yes. Filing a lawsuit is not necessarily the only way to resolve a contract dispute.
Depending on the situation, businesses may attempt to resolve disagreements through direct negotiation, attorney-assisted negotiations, mediation, or another dispute-resolution procedure.
Some contracts also contain provisions requiring mediation or arbitration.
Settlement can sometimes allow the parties to control the outcome and avoid some of the cost and uncertainty associated with continued litigation. In other cases, litigation may be necessary to protect a party's contractual rights.
The appropriate strategy depends on the strength of the claims and defenses, the amount at stake, the relationship between the parties, and the client's objectives.
How Long Do You Have to File a Breach of Contract Lawsuit in Texas?
Legal deadlines apply to breach-of-contract claims.
The applicable limitations period can depend on the type of agreement and the circumstances surrounding the claim. Contracts can also contain provisions affecting when or how claims must be asserted. Texas law places limits on certain contractual attempts to shorten the time to bring a lawsuit, while providing exceptions in particular circumstances, including certain business-sale agreements.
Because determining when a claim accrued and which deadline applies can involve legal questions, businesses should avoid waiting until a deadline is approaching to seek advice.
How Can Businesses Reduce the Risk of Contract Disputes?
While not every disagreement can be prevented, carefully prepared agreements can reduce uncertainty.
Businesses should make sure important contracts clearly address issues such as:
Each party's responsibilities
Payment terms
Performance deadlines
What constitutes default
Procedures for addressing a breach
Termination rights
Dispute-resolution procedures
Governing law
Responsibility for certain costs or attorney's fees
It is generally easier to address these issues while the parties are entering into an agreement than after a dispute has developed.
For assistance with contracts, transactions, and other ongoing business legal matters, businesses can also speak with a Dallas business attorney.
Talk to a Dallas Commercial Litigation Attorney About a Contract Dispute
A breach of contract can disrupt business operations, strain important commercial relationships, and result in substantial financial losses.
Whether your business believes another party has breached an agreement or your company is defending against a breach-of-contract claim, understanding the contract and your legal options is an important first step.
Dallas commercial litigation attorney Bruce Alford has more than 35 years of experience handling business and commercial legal matters. Contact The Alford Law Firm, PLLC to discuss a business contract dispute and determine what options may be available: https://www.brucealfordlaw.com/contact-us
Disclaimer: This article is provided for general informational purposes only and does not constitute legal advice. Contract disputes are fact-specific, and Texas laws and legal procedures may change. Reading this article does not create an attorney-client relationship with The Alford Law Firm, PLLC or Bruce Alford. If you have questions about a specific business contract or dispute, consult a qualified attorney regarding your individual circumstances.
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