What’s the point of a contract if I have to sue somebody to enforce it? Unfortunately, this is a question I have had to answer quite a few times over the last couple of years.  Imagine you want to enter into a business transaction with another person or business…we’ll call them the “Other Guy”…that’s a little easier than “party of the second part.”  Anyway, you sign a contract with the Other Guy and the contract has all the big words and seems to cover every possibility and you feel good about everything.  Then things don’t go as planned and the Other Guy fails to perform his part of the bargain.  Well the contract is pretty clear that the Other Guy has to perform right?  What’s the problem?

The problem is that a contract is not a gun.  You can’t waive a contract in someone’s face and make them do something they don’t want to do or can’t do.  Your primary recourse is to enforce the contract through the court system (i.e. you have to sue them).  Litigation is expensive and slow.  Even if you ultimately  prevail the cost of the process may greatly outweigh the potential contract benefits being enforced.  Further, even if you win a big judgment, you may not be able to collect if the Other Guy has no money.  Thus, in many cases even if the Other Guy is clearly breaching the contract, your most cost-effective option is to walk away.  I know some of you are thinking…where is the Corleone Family when you need them?

Now the prospect of a litigation roadblock doesn’t mean that you shouldn’t talk to an attorney if you believe you are being wronged.  You may decide to pursue the matter yourself in small claims court after a little coaching from an attorney.  There are other small and inexpensive steps short of litigation that an attorney may be able to help you with even if you have no intention of proceeding with a full law suit.  Sometimes all the Other Guy needs is a little push, and a demand letter from an attorney is enough to do the job.  I need to mention that if your contract has a provision allowing attorneys fees to be awarded if you prevail in litigation, that can often be useful leverage in obtaining cooperation from the Other Guy even when the contract dispute itself does not involve much money.  Again a review of all the facts  is important in deciding how to proceed in a contract dispute.

So what is the point of a contract?  A contract is designed to set the ground rules for a transaction and to address different conflicts that may arise and hopefully avoid surprises.  A contract does not guarantee that the Other Guy will perform.  Keep in mind that most people are honest and would not intentionally ignore or breach their obligations under a contract; however, many of them may simply find themselves in a position where they can’t perform.  They have made bad business decisions or suffered setbacks which make it financially impossible for them to live up to the terms of the contract.  Whenever you enter into a contract, you should consider things such as Who are you are doing business with? What is their experience and track record?  How likely is it that they may default? Do they have the resources to perform?  Don’t rely entirely on a contract to protect you.  Caveat emptor.