Businesses often find themselves on one side or the other of a breach of contract lawsuit. A breach of contract occurs when a party to a contract or other legally binding agreement fails to fulfill one or more of the terms of that contract.
Typically, a breach of contract claim is filed against a party outside of the business, like a vendor or contractor doing work for them. Of course, an employee or partner can also breach their contract.
How it differs from breach of contract
Breach of fiduciary duty is different from breach of contract, even though it often involves at least one, if not multiple, contract breaches. Some people mistakenly use these terms interchangeably. However, a breach of fiduciary duty can be far more serious to a business in part because it often involves someone inside the organization. It also may be more difficult to spot.
To have a breach of fiduciary duty claim, there must be a legally recognized relationship between two or more parties. When someone has a fiduciary duty, they have an obligation to act in the best interests of specified parties.
This can include other individuals and/or a business as a whole. Business partners, for example, are bound by a fiduciary duty to act in the best interests of the business as well as their other partners.
A breach of fiduciary duty can involve criminal activity
Breaches of fiduciary duty, particularly in the business world, can also be criminal offenses. Common examples include insider trading, self-dealing, fraud and theft of assets.
Whether the wrongdoing is criminal or not, a breach of fiduciary duty can still be grounds for civil litigation if financial harm resulted from the breach. If the harm is continuing, it’s particularly crucial to take action immediately to seek an injunction or other legal recourse to prevent further losses.
Any business that has suffered harm due to a breach of fiduciary duty should get experienced legal guidance to discuss the matter, review options and take the necessary action to seek justice and compensation.