Contracts are an essential part of the foundation of our society, whether we like it or not. No matter who you are, we all enter into contracts and we all depend on the ability to uphold our contracts. If you are an individual and have purchased tickets for a movie or concert, you have had a contract with the theater. If you are a small business restaurant owner, you likely have contracts with food suppliers. If you are a corporation, you might have a sophisticated licensing deal for your intellectual property.
Regardless of the size and sophistication, a contract is simply an agreement between two (or more) parties. Each party agrees to perform and carry out the terms and conditions stated in the contract. These agreements are made enforceable through the law. A breach of contract occurs when one party fails to fulfill any designated obligations under the contract. Such a breach can occur, depending on the specifics of the contract, when a party fails to perform on time, does not perform in accordance with the terms of the agreement, or does not perform at all. If this happens, then the non-breaching party may file a lawsuit and seek legal relief.
Here’s a simple example of how these situations play out.
Suppose that you hire a contractor to do a bathroom renovation in your home. The contractor, takes your money, rips out your bathtub, and then promptly takes a month long vacation. Not only has he not done the job you paid him to do, he has left you without a bathtub. You decide to sue under a theory that the contractor broke the contract. You, the plaintiff, must prove all of the following elements to prevail on your claim for breach of contract:
1. A valid contract existed. In order for you to even start a breach of contract suit, you must be able to show that a valid contract existed between you and the other party. If you have a written contract that has been signed by both parties, then this is relatively straightforward. However, if you only had a verbal agreement or some other handshake agreement with the contractor (which may still be valid contracts), you may have a more difficult time proving the existence of an enforceable contract because it is not written down.
2. You performed your obligations. In order to succeed in a breach of contract action, you must be able to show that you held up your end of the bargain under the terms of the contract. In this situation, you paid the money to the contractor. This qualifies as fulfilling your obligations.
3. The other party did not perform their obligations (breach). It seems pretty straightforward that in order to win a breach of contract suit, you must prove that the other party breached the contract, meaning that they did not do what they promised to do. Here, you will need to show that the contractor did not complete the bathroom renovation.
4. Lastly, you must be able to prove you were harmed by the contractor’s breach—these are referred to as your damages. The payment of damages — payment in one form or another — is the most common remedy for a breach of contract. There are many kinds of damages, including the following:
In the case of the vacationing contractor, you may need to hire another contractor in order to complete the job that the first contractor failed to do. This would be a compensatory damage. In addition, if you incurred expenses bathing elsewhere, you would want to show those costs as well. Again, this would be another compensatory damage—a damage to fully compensate you for your out of pocket expenses as a result of the breaching contractor.
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Sometimes damages are inadequate as a legal remedy. If the vacationing contractor were the only one capable of finishing the bathtub, you would want him to come back to work and do the job. If damages are not an adequate legal remedy, the non-breaching party may seek an alternative remedy called specific performance. Specific performance is best described as the breaching party’s court-ordered performance of duty under the contract. Specific performance may be used as a remedy for breach of contract if the subject matter of the agreement is rare or unique, and damages would not be sufficient to place the non-breaching party in as good a position as they would have been had the breach not occurred.
Although you may be able to prove all the elements of your case, it is still not time to head to the courthouse. In the American legal system, many more cases and controversies are settled before court than are those cases that are litigated to conclusion. Often times, the best solution to a problem is to simply sit down with the other side and talk about the problem to see if a resolution can be reached without resulting in court action. Additionally, mediation services have become quite popular and prevalent, and free and low-cost mediation can often be found in major cities. Mediation is a great way to have a neutral, third-party sit in on a conversation and suggest ways that a problem could be solved.
In fact, you may even be required to try mediation or arbitration before heading to court if your contract contains an arbitration clause requiring the parties to attempt to mediate or arbitrate a dispute before filing lawsuits. Similarly, many courts encourage parties in a lawsuit to mediate their differences before setting an actual trial date.
To demonstrate a possible solution using our bathroom renovation example, if you obtain a judgment against the contractor and he refuses to pay, you have a number of options. If the contractor is personally responsible for his business, you may be able to garnish his wages or place liens on his property. In addition, if the contractor is licensed, you may be able to get the state licensing board to revoke his contractor’s license until the judgment is satisfied. After considering all possible courses of action to collect, it may or may not be in your best interest to file a lawsuit.
In short, it is definitely recommended to consult with an Arizona business attorney when you are considering breach of contract litigation. Remember that the example of the vacationing contractor was a simple one. There are often complicated issues regarding where you are even allowed to file the lawsuit, or the timing of when you may file the lawsuit. Also, in Arizona under many circumstances, the prevailing party is entitled to reasonable attorney’s fees and costs associated with litigation that arises out of a breach of contract. Furthermore, contracts are often the basis of valuable, ongoing relationships, and so settling a dispute in a way that’s mutually agreeable to both parties can help preserve the relationship that could potentially benefit both parties in the future. Each case comes with its own unique facts and circumstances and the applicable laws and statutes at play may impact the manner in which you want to proceed with resolving your problem. An experienced attorney can help guide you with a roadmap of the best options available to you.
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