Suing for Breach of Contract

A contract is an agreement between two or more parties that creates an obligation to do or not do something. A breach of contract is the existence of an agreement or bargained-for exchange where one of the parties fails, without a legally valid excuse, to live up to his or her responsibilities under

A breach of contract usually occurs by one or more of the parties in one of the following ways:

• Failing to perform as promised.
• Making it impossible for the other party to perform.
• Making it known there is an intention not to perform.

A contract may be breached in whole or in part.

Statute of Frauds
It is always best, although not always required, to have a contract in writing. Nearly all states have a law called the Statute of Frauds that lists the types of contracts that must be in writing to be enforceable. The purpose of these laws is to prevent fraudulent claims from arising. Although Statute of Frauds laws will vary from state to state, the most common examples of contracts that must be in writing are:

• Sales of real property.
• Promises to pay someone else's debt.
• A contract that takes longer than one year to complete.
• Property leases for more than one year.
• Contracts for more than a certain amount of money, the amount of which is set by the state.
• A contract that will go beyond the lifetime of the one performing the contract.
• The transfer of property upon the death of the party performing the contract.

If you orally agree to one of the types of contracts listed above or one listed in your state's Statute of Frauds and do not memorialize the contract in writing, the contract will not be enforceable.

Statute of Limitations
If you sue for breach of contract, you must sue within the statute of limitations. Statutes of limitations are laws that set the deadline or maximum period of time within which a lawsuit or claim may be filed. The deadlines vary depending on the circumstances of the case, and the type of case or claim. The periods of time also vary from state to state and vary depending on whether filed in federal or state court. If a lawsuit or claim is not filed before the statutory deadline, the right to sue or file a lawsuit or claim is barred. Under certain circumstances, a statute of limitations will be extended beyond its deadline.

A chart listing the statute of limitations for some of the most common causes of action, including breach of written and oral contract, is available at Nolo.com.

For a detailed discussion of statute of limitations, go to Statute of Limitations Basics at AllBusiness.com.

Suing in Small Claims Court
You might want to consider suing for breach of contract in small claims court if the damages you will request for breach of contract fall within its limited jurisdictional amounts. Small breach of contract actions are commonly brought in small claims court, and more than 50 percent of claims filed in small claims courts are filed by businesses.

Small claims courts exist for the purpose of resolving simple disputes quickly and economically and are considered courts of limited jurisdiction, allowing claims for dollar amounts ranging from $1,500 to $15,000. In small claims court, the judgment is usually rendered immediately after the hearing. Appeal rights for both plaintiffs and defendants are limited.

Parties are generally not represented by attorneys in small claims court actions. The procedures in small claims court are much more informal than in other types of litigation. Little preparation is needed or required. Providing you have documentation regarding the breach, preferably a written contract and other evidence, you should be able to prove your case. You should also consider beforehand any defenses the customer or client might make and be able to address and dismiss them.

For a detailed discussion of suing in small claims court, go to Small Claims Court Basics at AllBusiness.com.

Suing in Civil Trial Court
If the amount of the damages you are demanding for the breach of contract exceeds the limited amount of a small claims court, you might consider suing in a more formal state court -- a trial court.

It is possible to represent yourself in a breach of contract action in state trial court without hiring an attorney. Nevertheless, state trial courts do not offer the informal procedure of small claims court, and you will have to learn and follow all of the complicated rules and procedures for bringing a lawsuit. And not only are the procedures more complicated, but it is also more expensive to pursue an action in civil trial court.

As with filing a claim in small claims court, it is possible that the mere filing of a lawsuit for breach of contract will induce or convince the breaching party to settle the dispute either by agreeing to pay some or all of the money you have demanded or by performing the contract.

Remedies for Breach of Contract A remedy is the rights given to a party by law or by contract that the party may exercise upon a default or breach by the other contracting party.

After you successfully sue for breach of contract, you will be entitled to some kind of relief under law. The main remedies available for a breach of contract action include the following:

• Damages. Damages are payment in one form or another paid by the breaching party to the non-breaching party. There are four basic types of damages: (1) compensatory damages, which serve to place the non-breaching party in the position the party would have been in if the breach had not occurred; (2) nominal damages, which constitute a token award of damages where there has been no actual money loss to the non-breaching party, or when the non-breaching party's performance was not without its own negative aspects; (3) liquidated damages, which are a specific amount of damages agreed to at the time the contract was first entered into; and (4) punitive damages (rarely given in contract actions), which are damages paid to the non-breaching party above and beyond what would make that party whole and also serve to punish the breaching party.

• Specific performance. If it is determined that damages are inadequate as a legal remedy to the non-breaching party, the equitable remedy of specific performance may be available. Specific performance is the compelling of the breaching party to do specifically what the party agreed to do under the contract. Specific performance may be used in a contract action only if the subject matter of the contract is rare or unique and damages would not be sufficient to place the non-breaching party in as good a position as if the breach had not occurred.
• Cancellation and restitution. If the non-breaching party has performed under the contract and given the breaching party any benefit under the contract, the non-breaching party may cancel the contract and sue for restitution. Restitution will put the non-breaching party back in the position he or she was in prior to the breach, and cancellation of the contract will void the contract and relieve all parties of any further obligations under the contract.

For more information, go to the Litigation section of the Legal Center at AllBusiness.com.