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How companies respond to a potential breach of a vendor contract

On Behalf of | Sep 9, 2022 | Business law

Businesses need to be able to control their costs and ensure a steady supply of materials or equipment to operate efficiently. Contracts exist in no small part to create accountability for business agreements so that a company can control its expenses and depend on the timely delivery of necessary material.

Written documentation helps clarify the responsibilities of each party to the other and makes a business arrangement enforceable in a court of law. Executives and business owners often take great pains to draft contracts that protect their interests. All of that effort may be in vain if another business violates a contract.

Vendor contracts, in particular, can have a major impact on a company’s operations, budget and reputation. How do businesses deal with a breach of contract by a crucial vendor?

They review their agreements

Most companies concerned about a breach of a contract will first review the contract in question. Sometimes, there will already be provisions in the contract for resolving a breach or a delivery delay. Other times, someone may have misremembered the terms of the contract, leading them to suspect a breach when there was no breach that occurred.

If a review of the contract shows that the vendor did violate the agreement, then the business coping with non-delivery or an unapproved substitution may need to file a lawsuit.

The courts have the authority to resolve contract issues

The Texas civil courts can resolve breach of contract matters in multiple ways. Vendor issues often lead to orders of specific performance. A judge can demand that the vendor make good on the agreement by following through with its obligations, especially if the other company has already made payment on the purchase.

Other times, a judge may invalidate or void the contract so that neither party can use it to take action against the other in the future. This step may involve a mandatory refund of any amount paid prior to the breach. Finally, the judge may potentially award the party affected by the vendor issue damages if there is proof of a negative financial impact caused by the vendor breach.

Understanding the common solutions for business disputes involving vendor contracts will help businesses trying to appropriately handle such a dispute.