Breach of Contract: Should Litigation Be In Your Future?
May 5, 2021
Breach of Contract: Should Litigation Be In Your Future?
Have you ever been in a situation where someone has decided not to honor their contract with you? Few things can be more frustrating, and it’s important to understand what your options are. Because legal remedies can be difficult to understand, we have a hypothetical case study for you to learn from. Please be aware that all cases are fact-specific, and this is not legal advice for your particular situation.
Eliza Ellison, a Tucson business owner, started Belle Madame, a cosmetics business marketed toward older women, several years ago. Eliza has figured out the secret to both making her aging customers’ skin look better and creating loyalty among her clientele.
One of Eliza’s major vendors, Dependable Beauty Supplier (DBS), sells her the raw material ingredient shea butter. Shea butter, which has skin nourishing properties, can be difficult to procure and is often subject to shortages and price fluctuations. Eliza’s Operations Manager suggested that, in order to ensure a continuous supply of shea butter at a stable price, Belle Madame enter into a Supply Agreement with DBS.
Last year, the parties signed a two-year exclusive Supply Agreement wherein DBS would supply Eliza with all her needs for shea butter in the manufacture of her cosmetic products at a fixed price.
For the first year, things went well. But over the last couple of months, DBS has not supplied Belle Madame with an adequate amount of shea butter as agreed to in the contract. Eliza and her Operations Manager have tried to work with DBS to understand the problem, but they have been unsuccessful.
Belle Madame has been able to find limited sources of shea butter in the interim, but at much more expensive pricing. As a result, the company’s manufacturing has stalled. Belle Madame cannot meet its consumer demand and is losing business to other cosmetic companies. Moreover, Belle Madame is now in breach of its agreement to provide several large Tucson department stores with a guaranteed amount of its products.
After investigating further, Belle Madame learns from a DBS employee that there is increasing demand for shea butter on the European market, and DBS management has decided to divert much of Belle Madame’s shea butter to European customers in order to receive higher prices. What are Belle Madame’s options in this case?
Legal Elements of a Valid Contract and Breach of Contract in Arizona
A contract is an agreement entered into by two or more parties under mutually agreeable conditions. It contains three elements:
– A verbal or written offer for a product or service.
– Acceptance of the offer.
– Consideration, which is what is exchanged. In this case, it is money for raw materials. But consideration could also be services, time, or in-kind donations.
In the case of Belle Madame and DBS, the elements of a valid contract have been met.
To prove the Supply Agreement has been beached, Belle Madame must prove an additional three things:
– Belle Madame performed its duty under the contract, or intended to or attempted to, even in the face of resistance or difficulty from DBS;
– DBS did not adequately perform its obligations under the agreement.
– Belle Madame suffered damages or losses due to the breach.
Given the facts and the legal framework, Belle Madame has made a strong case against DBS for breach of contract. The legal remedies would likely both be specific performance, a court order that DBS perform its obligations under the Supply Agreement, as well as compensatory money damages for losses that were incurred during the period that DBS breached the contract.
As compensatory damages, Belle Madame should be able to recover the difference between the contracted price for shea butter and what the company had to pay on the open market when DBS did not perform. Other actual, out-of-pocket expenses are often included in compensatory damages.
In rare cases, punitive damages may also be available for breach of contract to a plaintiff in the face of particularly egregious conduct by the other party. The standard is very high, though; Arizona courts require that the plaintiff present clear and convincing evidence that the defendant acted with an “evil mind” in knowing it was causing harm to the plaintiff. Linthicum v. Nationwide Life Ins. Co., 150 Ariz. 326, 332 (1986).
Contracts are an essential part of running a successful business. Regardless of your type of business, you need to engage with third parties. You may have office leases and vehicle leases, as well as agreements for janitorial services, security services, or courier services. When an essential agreement is breached, it may have very serious consequences for your company, and sometimes it’s necessary to engage in litigation to move your business forward.
Contact Counxel Legal Firm
We can draft and review your business agreements to ensure you have strong and protective contractual provisions in place. And we can also advise you when we think a breach of contract litigation may be in your best interest. Give us a call at 480-536-6122 to see how we can help your business.
This article is intended for informational purposes only and does not constitute legal advice for your specific situation. Use of and access to this article does not create an attorney-client relationship between you and Counxel Legal Firm. Please contact email@example.com or 480-536-6122 to request specific information for your situation.
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