How to Handle a Breach of Contract in Your Texas Business
Running a business in Texas involves managing an intricate web of agreements, partnerships, and contracts. Contracts form the backbone of commercial relationships, governing everything from vendor agreements to employment terms.
However, breaches of contract—when one party fails to fulfill their obligations—can disrupt operations, strain relationships, and lead to financial losses. Understanding how to handle a breach of contract effectively is crucial for business owners to protect their interests and stability. Contact an experienced business lawyer like Laird Morgan, Lawyer in Collin County, Texas, for assistance.
A Breakdown of a Breach of Contract in Texas
A breach of contract occurs when one party fails to perform their obligations as outlined in a legally binding agreement without a valid excuse.
In Texas, contract law is primarily governed by common law principles, supplemented by statutes like the Texas Business and Commerce Code, which incorporates parts of the Uniform Commercial Code (UCC) for certain transactions, such as the sale of goods.
There are three main types of breaches:
Material Breach: A significant failure to perform that undermines the contract’s purpose. For example, if a supplier fails to deliver critical materials, preventing your business from fulfilling customer orders, this could be a material breach.
Minor Breach: A partial or immaterial failure that doesn’t substantially affect the contract’s objectives. For instance, delivering goods a day late might be a minor breach if it doesn’t disrupt your operations.
Anticipatory Breach: When one party indicates they won’t fulfill their obligations before the performance is due, such as a contractor stating they can’t complete a project.
To pursue a breach of contract claim in Texas, you must establish:
A valid contract exists: The agreement must be legally enforceable, with clear offer, acceptance, consideration (something of value exchanged), and mutual intent to be bound.
Performance or attempted performance: You must show you fulfilled or attempted to fulfill your obligations under the contract.
Breach by the other party: The other party failed to perform their duties.
Damages: The breach caused measurable harm, such as financial losses or lost opportunities.
Texas law also recognizes oral contracts in many cases, but written contracts are easier to enforce due to clearer evidence of terms. The Statute of Frauds, codified in Texas Business and Commerce Code § 26.01, requires certain contracts (e.g., those involving real estate or agreements lasting over one year) to be in writing to be enforceable.
Review the Contract Thoroughly
The first step in handling a breach is to carefully review the contract to understand its terms and the nature of the breach. Key elements to examine include:
Obligations: What specific duties did each party agree to perform? Identify the clause or provision that has been violated.
Deadlines and conditions: Were there timelines or conditions tied to performance? For example, was payment contingent on delivery by a certain date?
Remedies clause: Many contracts include provisions for handling breaches, such as liquidated damages (a predetermined amount for violations) or mandatory mediation.
Termination provisions: Does the contract allow you to terminate the agreement if the other party breaches?
Governing law and venue: Contracts often specify that Texas law applies and designate a particular county for disputes, which affects where you can file a lawsuit.
If the contract is ambiguous or complicated, consult with a business lawyer experienced in Texas contract law. They can interpret vague terms and assess whether the breach is material or minor, which influences your legal options.
Document the Breach
Evidence is critical in resolving a breach-of-contract dispute. Document every aspect of the breach to build a strong case, whether you pursue an informal resolution or litigation. Steps to take include:
Gather communications: Collect emails, texts, letters, or other correspondence showing the other party’s failure to perform or their acknowledgment of the breach.
Record non-performance: Note specific instances of the breach, such as missed deliveries, incomplete work, or non-payment. Include dates, times, and details.
Preserve related documents: Keep invoices, receipts, purchase orders, or other records tied to the contract.
Photograph or video evidence: If the breach involves physical goods or property (e.g., defective equipment), take photos or videos to document the issue.
For example, if a contractor in Austin fails to complete a renovation for your retail store, document the unfinished work with photos, save all invoices paid, and retain emails discussing the project timeline.
Notify the Breaching Party
Before escalating the matter, notify the other party of the breach in writing. This serves multiple purposes: it gives them a chance to cure (correct) the breach, clarifies your position, and creates a paper trail for potential legal action. Your notice should include:
A reference to the specific contract and clause violated.
A clear description of the breach (e.g., “You failed to deliver 500 units of product X by March 1, 2025, as required by Section 4 of our agreement”).
The impact of the breach on your business (e.g., lost sales or additional costs).
A demand for remedy, such as completing performance, paying damages, or refunding payments.
A reasonable deadline for response or correction (e.g., 10 or 30 days, depending on the urgency).
Send the notice via certified mail or email with a read receipt to confirm delivery. In Texas, some contracts require formal notice before legal action, so check the agreement for any such requirements.
For instance, if a Houston-based supplier short-delivers inventory, you might write: “Under our January 2025 supply agreement, you were obligated to deliver 1,000 units by April 1. Only 600 units were delivered, causing us to lose $10,000 in sales. Please deliver the remaining 400 units by April 20, 2025, or we’ll pursue further remedies.”
Attempt to Resolve the Dispute Informally
Litigation is costly and time-consuming, so explore informal resolution first. Options include:
Negotiation: Directly discuss the issue with the breaching party to reach a mutually agreeable solution, such as partial performance, a discount, or extended deadlines.
Mediation: Engage a neutral third party to facilitate discussions. Mediation is non-binding but can preserve business relationships. Many Texas counties, like Harris and Dallas, offer mediation services through local dispute resolution centers.
Offer a compromise: Propose a middle ground, such as accepting late performance with a penalty or reducing payment for incomplete work.
Informal resolution is particularly useful for minor breaches or when you wish to maintain an ongoing relationship with the other party. For example, if a San Antonio vendor delivers defective goods, you might negotiate a replacement shipment at no cost instead of terminating the contract.
Consider Legal Action
If informal efforts fail, evaluate whether legal action is warranted. Consult a business lawyer to assess the strength of your case and the potential costs versus benefits. Key considerations include:
Statute of limitations: In Texas, the statute of limitations for most breach of contract claims is four years from the date of the breach (Texas Civil Practice and Remedies Code § 16.051). For contracts involving the sale of goods under the UCC, the limit is also four years (Texas Business and Commerce Code § 2.725). File within this period to avoid losing your right to sue.
Damages available: Texas law allows several remedies for breach of contract:
Compensatory damages: To cover direct losses, such as the cost of hiring a replacement vendor.
Consequential damages: For indirect losses, like lost profits, if they were foreseeable.
Specific performance: A court order requiring the breaching party to fulfill the contract, used when monetary damages are inadequate (e.g., for unique goods or real estate).
Rescission: Canceling the contract and restoring both parties to their pre-contract position.
Jurisdiction and venue: Determine whether to file in state court (e.g., district or county court, depending on the amount in dispute) or federal court if diversity jurisdiction applies. Many Texas contracts designate specific counties, like Travis or Bexar, for disputes.
Attorney’s fees: Texas law allows recovery of reasonable attorney’s fees in breach of contract cases if you prevail (Texas Civil Practice and Remedies Code § 38.001), but only if you present the claim to the other party at least 30 days before filing and they fail to pay.
For example, suppose a Dallas client owes your business $50,000 for services rendered and ignores your demand letter. In that case, you might file a lawsuit in the Dallas County District Court seeking compensatory damages plus attorney’s fees.
Mitigate Your Losses
Texas law requires you to mitigate damages, meaning you must take reasonable steps to minimize the harm caused by the breach. For instance, if a supplier fails to deliver raw materials, you should seek an alternative supplier rather than letting production halt indefinitely. Failure to mitigate could reduce the damages you can recover in court.
Document your mitigation efforts, such as quotes from other vendors or costs incurred to address the breach. This strengthens your case by showing you acted responsibly.
Protect Your Business Moving Forward
A breach of contract can expose vulnerabilities in your business practices. To prevent future issues:
Strengthen contracts: Work with an attorney to draft clear, detailed agreements with robust remedies clauses, dispute resolution procedures, and termination provisions.
Conduct due diligence: Vet partners, vendors, and clients before signing contracts. Check their financial stability, reputation, and performance history.
Monitor compliance: Regularly review contract performance to catch potential breaches early.
Purchase insurance: Consider business interruption or contract liability insurance to cover losses from breaches.
Train staff: Educate employees on contract management to assure compliance and proper documentation.
For example, a Fort Worth manufacturer might revise vendor contracts to include stricter delivery timelines and penalties for delays after experiencing a breach.
Special Considerations in Texas
Texas has unique legal and cultural factors that influence breach of contract disputes:
Business-friendly environment: Texas courts often favor enforcing contracts as written, emphasizing freedom of contract. However, they also scrutinize claims to make sure of fairness.
Oil and gas industry: If your business operates in Texas’s energy sector, breaches may involve intricate contracts like drilling agreements or leases, requiring specific legal experience.
At-will employment: Employment contracts in Texas are subject to the state’s at-will doctrine, meaning breaches may hinge on specific written terms rather than implied obligations.
Economic growth: Texas’s booming economy, especially in cities like Austin and Houston, means more contracts and potential disputes. Stay proactive to avoid disruptions.
Understanding these Texas-specific dynamics assures your business is better equipped to traverse and resolve contract disputes effectively.
When to Seek Legal Counsel
While minor breaches can often be resolved informally, consult a business lawyer in these situations:
The breach involves significant financial stakes (e.g., over $10,000).
The contract is complicated or involves multiple parties.
The breaching party threatens countersuits or disputes your claims.
You’re considering litigation or need to defend against a lawsuit.
The breach affects regulatory compliance (e.g., in healthcare or construction).
An experienced Texas contract attorney can traverse local court procedures, negotiate settlements, and maximize your recovery. Firms in cities like Dallas or San Antonio are often experienced in business disputes and can provide tailored advice.
Contact a Business Lawyer Today
Handling a breach of contract in your Texas business requires a strategic blend of preparation, documentation, and action. By understanding the legal process, promptly addressing the breach, and exploring both informal and formal remedies, you can protect your business’s interests and minimize losses. Depend on Laird Morgan, Lawyer, an experienced business lawyer, in Collin County, Texas. We serve clients throughout the surrounding areas. Contact us today.