Should I Sue for Breach of Contract?
Advice to resolve contractual disputes in Iowa
on March 29, 2021
A contract is a legally binding agreement between two or more parties—and the backbone of everyday business. Sales contracts allow people to purchase land, goods, and services. Other contracts govern matters like employment. Ideally, all parties uphold their contractual obligations without question or delay. But as we all know, things do not always go as planned.
When a party fails to perform its obligations under an agreement, it is in breach of contract. To take a simple example, you sign a contract to purchase 1,000 widgets from Smith Widgets, Inc., for $10,000. You deliver a $10,000 check to Smith, but you never get your widgets. This places Smith in breach of contract.
So what are your legal remedies in this situation? The answer often depends on the form and provisions of the original contract. You might be able to file a lawsuit against Smith for its breach; or there may be an alternative dispute method that may work better for both you and the other party.
Is There a Legally Binding Contract?
Before you take any sort of legal action, you will first need to prove that a valid contract existed in the first place. If you had a written agreement with the other party, that is usually sufficient proof. Even without something in writing, however, an oral agreement may also qualify as a legally binding contract. In the hypothetical widget purchase described above, a court could find there was an oral agreement.
But there are some contracts that must be in writing and, even more, in accordance with the law.
“If someone came to me with a potential breach of contract claim, the first thing I do is determine, ‘How enforceable is this?’” Emilee Boyle Gehling, who advises businesses at Gehling Osborn Law Firm in Sioux City. A common one that can sometimes be incongruous with the law is noncompete agreements, which in Iowa need to be reasonable in geographic scope as well as duration. They can’t just be blanket statements.
Like most states, Iowa has what is called a Statute of Frauds, which requires a written agreement in the following cases:
- Prenuptial agreements
- Promises to pay someone else's debts
- The transfer of any interest in real estate, except for leases lasting less than one year
- Any contract that will take more than one year to complete.
Alternatives to Litigation
If you’ve been the victim of a breach of contract, it doesn’t necessarily mean you should head straight to court. “Often, we may want to start with a cease and desist letter,” says Gehling, “because the situation may be that the other party is taking an action that they should not be. So the first thing you want to do is stop that action—especially if the amount of damages would continue to rise. We could also get an injunction against the person in order to stop the action, or force them to do the action that they're supposed to be doing.”
If those aren’t enough, you have two options: let it be, or proceed with a breach of contract action. “Usually, a contract will have a clause that states where the jurisdiction and venue will be, whether that's in a court, where that court is located, or an ADR option,” says Gehling.
Alternative Dispute Resolution covers anything that isn’t litigated in a traditional court. Arbitration is the most common in business contracts, Gehling says. Such provisions mean that if either side alleges a breach, it cannot file a lawsuit. Instead, the party claiming a breach must submit the matter to a private judge, who holds a hearing, considers evidence, and issues a decision known as an award, which is legally binding on all parties.
Sometimes mediation is called for in a contract, Gehling adds. “If I'm drafting a shareholder agreement for a closely held company, a lot of times we want to encourage parties to get along so the business can continue to grow and flourish. So I may choose mediation before everything else because we'll all have this joint goal to get along.” A mediator is also a neutral third party. Unlike an arbitrator, however, the mediator cannot force a resolution on anyone. The mediator's role is simply to help the parties reach an agreement they can live with. If mediation fails, litigation is still on the table.
Either is likely less expensive and time consuming than traditional litigation, but it can also limit discovery and presenting evidence. And, in the case of arbitration, the ability to appeal is limited.
“So it's very strategic which one you choose in any given contract,” Gehling says.
If neither arbitration nor mediation is a viable option, litigation may be your only chance to remedy a contractual breach. A court can order the breaching party to pay compensation or, if possible, to perform its obligations under the original agreement.
Drafting and Reviewing Contracts
Breaches of contract are commonly situations such as a buyer failing to pay a supplier or a buyer alleging that the supplier provided a defective product. In those cases, the suing parties may have no problem taking the other to court. Situations in which the parties need to continue doing business afterward, however, can be trickier. “So you've got to be strategic when you're thinking through the contract provisions at the beginning,” Gehling says.
Not only can a qualified Iowa contract lawyer review your situation and advise you on remedies when a breach occurs; they can also help ensure your contracts are strong. As for what to look for in that attorney, Gehling suggests experience: “When you draft contracts, it makes you a better litigator for a breach of contract. And when you litigate breach of contract cases, it makes you a better contract drafter. So all the things that you've seen happen before, you can incorporate that into your thought processes for either matter.”
After you’ve got solid contracts, you still may want periodic advice. “If we have a major change in law, then we would want to work with that client to say, ‘Let's look at this again and just make sure that we address all the points that this new law is asking us to address,’” Gehling says. “Otherwise, I think it is a good idea every few years to take a look at your contracts and see, ‘Can this be improved?’ Because oftentimes they can be—different situations arise as time goes by.”