When should your business file a lawsuit for breach of contract?
If vendors, customers, or other businesses have entered into an agreement with you or your company and failed to perform their obligations, you might have a lawsuit for breach of contract. But should you file a lawsuit? And if so, when?
In many cases, your business’s attorney can help you to resolve the conflict out of court – once legal counsel is involved, the other side knows that you are prepared to enforce your rights in court if necessary and that it is in everyone’s best interests to resolve the dispute without the need for the time and expense of litigation.
Below, we will discuss how to minimize the risk of contract disputes by having your attorney negotiate and draft your business contracts or by having your attorney review your current contracts to ensure all obligations, rights, and potential remedies are spelled out in detail. We’ll also discuss the basics of breach of contract law in Texas including the elements that must be proven and the potential defenses that could be raised.
Breach of Contract: Minimizing the Risk of Lawsuits
Just as good fences make good neighbors, good contracts make good business partners…
Ethical businesses and individuals pay their debts and follow through with their obligations, but 1) some businesses and individuals are not ethical and 2) even ethical businesses or individuals may have disagreements, misunderstandings, and circumstances that prevent them from fulfilling their obligations.
This is often how businesses end up in court litigating disagreements and failed contracts – a result that most companies want to avoid or minimize as much as possible.
Having effective business contracts in place that make the agreement clear and that cover all possible contingencies can save your business money and preserve your relationships with other businesses, customers, and vendors.
Your attorney at Murray-Lobb can review your business’s existing contracts to ensure that they contain (or, when appropriate, don’t contain) key provisions like:
- Clear statements of each side’s responsibilities under the contract,
- Clear statements of what each side receives under the contract,
- Time limits for performance under the contract,
- Notice provisions,
- Special warranties,
- Termination rights,
- Liquidated damages in the event of non-performance or partial performance,
- Force Majeure clauses,
- Choice of law provisions,
- Arbitration clauses,
- Statute of limitations provisions (the statute of limitations for a breach of contract action can be limited to two years by contract), and
- Other provisions that are specific to the services or goods that are being provided.
In many cases, clear and concise terms in your business contracts will prevent a breach of contract because each party knows exactly what their obligations and rights are. In other cases, clear and concise terms in your business contracts will allow you to enforce the contract terms more easily, whether that is through negotiation or the courts.
Breach of Contract Law in Texas
When negotiation fails, you can turn to the courts to enforce a business agreement. What are the elements that must be proven for breach of contract? What are the potential defenses? And what are your available remedies in a breach of contract action?
The Elements of Breach of Contract in Texas
If you are forced to file a lawsuit, you must prove the elements of breach of contract in Texas:
- A contract was formed – although it is best to have detailed, written agreements drafted by your attorney and signed by both parties, a legally enforceable contract involves 1) an offer, 2) acceptance of the offer, and 3) consideration (a payment or benefit).
- You performed your obligations under the contract (although your performance may be excused if there is a material breach by the other party that is not cured),
- The other party did not perform their obligations under the contract, even after providing them the opportunity to “cure” their breach, and
- You suffered damages because of the other party’s breach of contract.
Whether you are filing the lawsuit, or you have just been served with a lawsuit for breach of contract, what are the potential defenses that can be raised?
Defenses to Breach of Contract in Texas
There are many possible defenses to breach of contract claims in Texas – please note that if you have been served with a lawsuit, or anticipate being served with a lawsuit for breach of contract in Texas, your attorney at Murray-Lobb will need to meet with you and review your situation, the contract terms, communications between the parties, and all available facts before advising you as to which potential defenses we will raise in your case.
Some of the more common defenses to breach of contract include:
- No breach – obviously, if your obligations have been performed under the contract, there is no breach,
- Statute of limitations – a lawsuit for breach of contract in Texas cannot be brought after four years (or two years if stated in the contract),
- Indefinite terms in the contract – some contracts may be missing key language like the agreement’s time frame or the specific goods or services one party is required to provide,
- Statute of Frauds – some contracts are not enforceable unless they are in writing (real estate purchases, for example),
- Condition precedent – when the contract states that a particular event needs to happen before the other party is required to perform their obligations under the contract, and that event has not happened,
- Illegality or violation of public policy – if a contract requires an illegal act or an act that is in violation of public policy, it is unenforceable,
- Accord and satisfaction – when the plaintiff has already accepted partial payment to settle the contract dispute,
- Mistake – the contract may be unenforceable due to a mutual or a unilateral mistaken belief as to the contract terms,
- Fraudulent inducement – if one party “induces” the other to enter a contract by misrepresenting material facts, the contract may be unenforceable and there may be a separate cause of action for fraudulent inducement,
- Impossibility – in some cases, a change in circumstances might have made it impossible to honor the contract,
- Repudiation – the plaintiff, through words or actions, has previously told the defendant that they did not intend to honor their obligations under the contract,
- Ratification – the plaintiff has previously informed the defendant that the defendant’s non-performance is excused,
- Estoppel – the plaintiff has previously told the defendant that their non-performance is excused, and the defendant “relied on that statement to their detriment,”
- Waiver – the plaintiff has previously waived their rights under the contract, or
- New contract – the contract is unenforceable because it has been superseded by a new contract with different terms.
If you file suit and win, what are the possible remedies that are available under Texas law?
Available Remedies for Breach of Contract
If you are successful in your breach of contract action, your remedy should put you in the position that you would have been in if the other side had performed their obligations under the contract.
This could include:
- Monetary damages – you are entitled to receive “the benefit of the bargain” as well as any foreseeable losses that resulted from the breach of contract,
- Equitable relief – when appropriate, the court may order an injunction (forcing the other side to do something or to not do something), revision of the contract, rescission of the contract, or specific performance (forcing the other side to perform their obligation under the contract), and
- Attorney fees – Texas law permits successful plaintiffs to recover reasonable attorney fees in an action for breach of contract.
Please feel free to contact any of our Murray Lobb attorneys with your business contract or other business law questions so we can help you better protect all your commercial and contractual rights. We also remain available to draft any new contracts or others documents that you may currently require.