When a contract is broken or its terms disputed, contract litigation may become necessary. Legal contracts – particularly business contracts – can be exceptionally complex, and litigation involves such issues as proving the meaning and intent of a contract’s terms, reviewing the terms’ legality and enforceability, which elements, if any, have been breached and, if so, what damages are owed.
Because experienced contract litigators are more likely to prevail when contract disputes are taken to court, attorneys with less experience may do their best to avoid a lawsuit by recommending negotiation. “If the other party proposes terms that seem more acceptable than going to court, this is fine,” says Litigation attorney Daniel Kersey. “But if the other party breached the terms of a contact you entered in good faith, or if they wrongly accused you of a breach, litigation is often the best recourse to ensure enforcement of the contract’s terms and receive adequate recovery of damages and applicable legal fees.”
Litigation can arise from any number of business, organization or government contract disputes – all it takes is for even one element of the contract to be left open to interpretation, be legally unenforceable, or fail to cover an unexpected circumstance. As one might imagine, a truly solid contract addresses the specifics of so many possible circumstances that it requires someone with exceptional experience to interpret its intent and argue that intent persuasively in a courtroom.
The Necessary Elements of a Contract
In breach of contract cases, the plaintiff bears the burden of proof that the contract contains all of the essential components to make it binding, including:
The Offer
Simply stated, the offer amounts to one party stating, “I’ll give you this for that.” You offer one thing, whether it is a specific payment, product, service, etc., in exchange for what you want from the other party. Offers are not legally binding, as no formal agreement has been reached.
The Acceptance
If the other party agrees to your offer exactly as it is, it is now a contract. But that is often not the case – the other party will often want to enhance the terms to their benefit and provide a counter offer. The haggling stage may go back and forth many times before terms agreeable to both sides are reached. If no mutual agreement is reached, there is no acceptance, and thus, no contract. If, however, the acceptance exactly matches the terms and methodology outlined in the offer, it forms the foundation of a contact.
Consideration
Each party entering a legally binding contract must include what’s known as consideration, which covers the benefit each is getting from the contract. Generally, consideration is either a promise to do something you’re not legally required to do, such as sell your car for x amount, or an agreement not to do something you have a legal right to do, such as file a lawsuit against a party that damaged something of yours. A contract lacking consideration may be considered unenforceable by some courts.
Mutuality of Obligation
Both parties must agree to be bound by the terms of the agreement.
Legal Capacity
All parties must have the legal capacity to enter into a contract. For example, a person entering into a contract on behalf of an entity, say, a business, must have the legal authority to obligate that business. Generally, minors, people who have a mental impairment or lack the ability to understand the contract’s purpose, or are under duress when making the agreement, may not be considered capable of creating a legally binding agreement. “Depending on the person or circumstances, capacity may have to be determined by the courts,” says Of Counsel Matthew Black. “If the court declares or discovers that a party lacks capacity, that party can void the contract if they so desire.”
Writing
While not all contracts have to be in writing to be valid (oral contracts can and do exist), some must be, including those involving land. “Clearly any business deal should be in writing,” says Mr. Kersey. “Handshake agreements seem friendly and homey, but are difficult to enforce should something go awry.”
Voiding a Contract
Even when the legal conditions of a contract are met, parties can find myriad reasons to seek voiding them, some valid and some not. “A party can seek to nullify a contract by alleging fraud, undue influence, duress, and the list goes on,” says Mr. Black. “A qualified attorney can help determine which, if any, reasons for voiding a contract may be potentially valid.”
Avoiding Breach of Contract Lawsuits
Business agreements can be a bit like marriages – when the agreements are being made and the contracts drafted, both parties are happy in the moment and often not thinking about what might happen down the road. Few are focusing on the possibility of future litigation, and this can lead to mistakes in setting up the contract’s terms.
A few common reasons for Breach of Contract (but far from all of the possibilities) include:
1. Inaccurate Identification of the Parties – Particularly common among new businesses, misidentification can occur when someone intends to form a corporation or LLC but hasn’t done it yet, and the business is formed under a different name or designation, or never gets off the ground. Sometimes people intend to sign as an officer of a company, but sign with their name as they would any other document, inviting personal liability claims in addition to claims against the company. “This is a surprisingly easy mistake that can come with ugly consequences,” says attorney Loren M. Vasquez. “That's one reason why legal counsel can be crucial before contracts are entered.”
2. Personal Guarantees. Individuals sometimes enter contracts by signing a personal guaranty, meaning they will also be named in any breach of contract action. Personal guaranty removes the protections provided by incorporation, which safeguards individuals from such lawsuits.
3. Jurisdictional Clauses. Many contracts contain a jurisdictional clause stating that in the event of a breach of contract lawsuit, that contract will fall under a jurisdiction favorable to one party, even if it is in a different state than the one in which the contract was formed. This may prove to be not only expensive and inconvenient, it may also demand finding legal counsel in the state named in the clause.
4. Arbitration Clauses. Lots of contracts include an “arbitration clause,” which seeks to prevent any breach of contract case from being heard in a courtroom. This often appeals to people who assume that arbitration will save them money and be less of a hassle than litigating in court. These assumptions are often untrue and can greatly limit your rights. In most cases, the decision made in arbitration can’t be appealed, and there is no right to have a jury hear your case.
“No one wants to go to court, but it can be important to have the option preserved in case your business stands to suffer severe damages in a breach of contract claim” says Mr. Vasquez.
Trends Likely to Occur In 2021
The pandemic deeply affected many businesses, altering their cash flow and standard operations and producing numerous setbacks. Companies’ inability to pay their debts on time has led to an uptick in breach of contract cases. This will likely result in more contracts being renegotiated, revised or restructured, or even ignored. There is a great likelihood that commercial litigation cases will grow in the coming months, even years.
More Employment Litigation Cases
As more people get laid off, furloughed or subjected to changing working conditions, there will certainly be an increase in lawsuits alleging unfair firings, forced time off, untenable work environments and discriminatory practices.
Higher Legal Costs
As demand for litigation increases, so too may the cost of hiring an attorney. With legal fees estimated to go up by 5% or more, it is more important than ever to find legal representation with the experience, talent and dedication needed to help promote winning outcomes for your business. Look for a firm that can help protect you from lawsuits in the first place, and also has the litigation experience to achieve the best possible settlement should your case end up in court.
Sure, we would all like to avoid going to court, but when another party breaches a contract or falsely claims you did and legal action becomes necessary, the Litigation attorneys of McLin Burnsed have the experience and acumen to protect your business’s interests at every stage and through every turn in the road.