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Breach of Contract: 5 Steps to Preventing a Costly Lawsuit

By July 18, 2016September 21st, 2017Business Contracts, Business Lawyer

breach of contractAre breach of contract lawsuits expensive? Yes. For example, there’s currently a legal battle in California over whether the loser in a contract dispute has to pay the winning side’s legal fees.

How much is at stake? $1.3 million in attorneys fees.

The winning side even showed up for a court hearing with 8 lawyers and charged almost $8000 per hour for them to be there. Apparently 1 or 2 attorneys representing the client just wasn’t enough.

Let’s face it. The only winners in these types of lawsuits are the trial lawyers – not the clients.

Related Article: Does Your Business Lawyer Draft Contracts That Encourage Dispute Resolution Or Lawsuits?

Fortunately, there are five simple steps you can take to reduce the likelihood you’ll get stuck with an expensive lawsuit for breach of contract.

1. Open Lines of Communication

Circumstances often change during the term of an agreement. If you can’t deliver what you’re supposed to under the contract, preemptively try to resolve the problem informally by discussing the issue with the other party. Also, encourage the other party to do the same with you if something goes wrong on their end. This reduces the chances that either of you will dig a big hole that can’t be repaired, causing bad feelings and years spent in court determining who owes what in damages.

Related Article: Business Contracts – Why You Should Avoid Email Deals

2. Cure Period

Set up your contract so it’s easy to notify each other if there’s a problem and give a reasonable time to fix the issue (e.g. 14 to 30 days) before declaring there’s been a breach of contract.

3. Mediation

Have your agreement provide for mediation using a neutral third party (ideally a professional mediator) to help you resolve your differences if there’s unresolved issues of performance that you can’t fix by discussing 1:1 with the other party.

4. Binding Arbitration

If a mediator is unable to smooth things over between the parties, your agreement can provide that breach of contract issues must then be settled in private commercial arbitration applying JAMS or AAA arbitration rules.

Of course, you may want to carve out a few exceptions for being able to head to court instead of arbitration. For example, if the other party misuses your trade secrets and customer lists to compete against you, you’ll want the ability to go to court to obtain injunctive and other equitable relief to prevent further harm to your business.

5. Don’t sweat the small stuff when there’s a breach of contract

If a contract’s performance is over a period of time, it’s rare that both parties perform 100%. Don’t make mountains out of molehills. In other words, if the other side has breached your agreement, but you got 95% of what you expected from the deal, ask yourself whether it’s really worth investing your time and money to fight over the other 5% that wasn’t delivered.

An experienced business lawyer will be able to set up your agreement consistent with these simple steps so that you’re protecting your interests in case of breach of contract but at the same time reducing the odds you’ll end up in court.

Related Resource: Business Contract Legal Protection Package

And if you already have existing contracts you use repeatedly in your business, it’s a good idea to make sure they’re updated to address these and other legal issues that will save you time and money.

Mike Young, Esq.

Author Mike Young, Esq.

Mike Young has been practicing business and technology law since 1994 and is an angel investor in startups. He's been an entrepreneur since 1988. To get legal help from Attorney Young, click here now or call 214-546-4247 to schedule a phone consultation.

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