Contracts are the backbone of business agreements. They outline what each party promises to do and offer protections if things go wrong. But what happens when someone fails to follow through on their end? This is called a breach of contract. Understanding what this means and knowing your options under Tennessee law can help you handle problems when they arise in business relationships.
What Does "Breach of Contract" Mean?
Put simply, a breach of contract happens when one party doesn’t do what they agreed to in the contract. To take legal action, three things usually need to be true:
There’s a valid contract. This means an agreement was made with clear terms, and both sides promised to give or do something valuable.
One party didn’t keep their promise. This could mean they didn’t do what was required, did it improperly, or didn’t do it on time.
The other party was harmed. For example, one side might have lost money because of the failure to deliver.
Breaches generally fall into two types:
Major (Material) Breach
A major breach happens when one side fails so badly that it defeats the purpose of the entire agreement. For example, if a supplier failed to deliver essential goods by the agreed-upon date, this would likely be a major breach. When this occurs, the other party may be able to cancel the contract and seek compensation.
Minor Breach
A minor breach is less serious and doesn’t ruin the overall contract. Maybe a vendor delivers an order slightly late, but it doesn’t have a big impact on the business. Even with a minor breach, you may be able to request payment for any losses incurred as a result.
Legal Solutions When a Contract Is Broken
When a breach happens, the law provides several ways to address the situation. Here are some common remedies available in Tennessee:
1. Monetary Compensation
Money is often the simplest way to make things right. There are two main types of compensation in these cases:
Compensation for direct losses. These are the straightforward costs caused by the breach, like money you lost because a client didn’t pay their bill.
Compensation for indirect losses. Sometimes, a breach causes ripple effects. For example, if a late delivery caused you to lose a big customer, you might be able to recover those lost profits. However, Tennessee law requires these losses to be reasonably predictable to qualify for compensation.
2. Pre-Set Penalties (Liquidated Damages)
Some contracts include a clause that sets a specific price to be paid if the agreement is broken. This is common in business deals and can save time by avoiding disputes over how much money is owed. The court will enforce this only if the amount is reasonable and not overly harsh.
3. Specific Performance
Sometimes, money isn’t enough to fix the problem. In unique situations—like when a contract involves rare goods or real estate—the court may order the breaching party to do exactly what they promised.
4. Canceling the Contract
If the breach makes it impossible to continue working together, you might have the right to walk away from the deal entirely. You can also seek restitution, which means getting back anything you already paid.
5. Reducing the Damage (Mitigation)
The non-breaching party is expected to try to lessen the financial harm caused by the breach. For instance, if a supplier doesn’t deliver, you should try to find another vendor instead of simply waiting. This is part of being reasonable and responsible, as the court may reduce your compensation if it finds that you didn’t make an effort.
Important Considerations Under Tennessee Law
Here are a few things unique to Tennessee's legal landscape that you should keep in mind:
Time Limits for Legal Action. Tennessee generally gives you six years to bring a lawsuit for breach of contract. This applies to both written and verbal agreements.
Good Faith Requirement. Every contract has an unwritten rule that both parties must act honestly and fairly. If your partner does something sneaky to sabotage the agreement, you could have grounds for a claim.
Written Agreements Matter Most. Under Tennessee law, courts typically stick to what’s written in the contract. Oral agreements or promises made outside the contract are usually not considered unless there’s evidence of fraud or ambiguity in the document.
How to Prevent Contract Issues
It’s better to avoid problems than to fix them later. Here are some steps you can take to protect your business:
Draft clear contracts. Make sure the agreement spells out everyone’s responsibilities, deadlines, and what happens if something goes wrong.
Keep records of everything. Emails, meeting notes, and signed amendments can all help settle disputes if they arise.
Work with trustworthy partners. Building strong, reliable business relationships reduces the risk of intentional breaches.
Review and update your contracts. Business needs change over time, so your agreements should reflect your current reality.
When to Consider Legal Help
If someone breaks a contract with you or your business, acting quickly and strategically is crucial. An experienced attorney familiar with Tennessee contract law can help you evaluate your situation, determine your best course of action, and protect your interests.
Whether it involves negotiating a settlement, pursuing alternative dispute resolution, or filing a lawsuit, the right legal guidance can make all the difference in resolving disputes effectively and minimizing disruptions to your business.
At Eldridge and Cravens, PC, our team understands the complexities of business litigation and contract disputes. We’re here to provide tailored advice, draft strong contracts, and help you navigate legal challenges with confidence.
If you’re facing a potential breach or want to fortify your contracts, contact us today to schedule a free consultation and explore your legal options.