If you entered into an agreement with another party and you performed your end, you expect the other side to do the same. When that does not happen, a common action taken is to sue in court to get back your money. While many lawsuits are based on a breach of contract, sometimes that is not possible because there is no enforceable contract. In such cases, there are other claims that may be available to you. Each applies in different circumstances and has varying requirements.
Breach of contract
Most everyone understands the concept of breach of contract. If both parties agreed to certain terms and one party committed a material breach that resulted in a monetary loss to the other, an action can be brought in court to recover what is owed. Before there can be a breach, however, there must be a contract. A valid contract must have three elements:
- an offer,
- acceptance of the offer, and,
- consideration (an exchange of benefits).
While contracts may be written or oral, New York law requires that certain contracts be in writing to be enforceable.
Assuming you have a valid enforceable contract, in order to sue, the breach must be “material” – that is, the failure to perform under the contract must be significant enough to destroy the value of the contract. Minor issues with performance are not enough. In addition, you must have performed your obligations under the contract and suffered damages as a result of the material breach. A suit for breach of contract must be commenced within six years of the breach unless the contract provides for a shorter time frame.
Unjust enrichment
Where an enforceable contract does not exist, a party may still have a Where an enforceable contract does not exist, a party may still have a remedy by bringing an action based on unjust enrichment. Essentially, a claim of unjust enrichment requires that one party was unjustly enriched (unfairly benefitted) at the expense of another party and that it is against equity and good conscience to permit the first party to retain that unfair benefit.
Importantly, unjust enrichment is a quasi-contract claim that exists only when there is no viable contract. As a result, you often cannot sue for both breach of contract and unjust enrichment. However, if there is a bona fide dispute as to the existence or applicability of a contract, a party could sue for both breach of contract and unjust enrichment as alternative remedies depending on whether the court decides there is a valid contract.
Account stated
“Account stated” is a cause of action for payment where one party sent invoices to the other and the recipient of the invoices failed to object within a reasonable period of time and thus can be held liable for the entire amount of the invoice. The rationale is that a party who fails to dispute an invoice within a reasonable time is deemed to have acquiesced and is bound by it as an account stated unless fraud, mistake or other equitable considerations are shown.
However, an account stated claim has a significant limitation. There must be an existing valid underlying contractual or quasi-contractual obligation. That means the account stated cannot be used to create liability where none exists. Instead, it is used to preclude a dispute over the amount owed. In an account stated claim, the plaintiff does not have to prove the details of their performance, since the party who received the invoices should have made any objections to performance or the amount of the invoice within a reasonable period of time after receipt.
Instituting or defending against a lawsuit for payment
When payment is owed based on a contract or quasi-contract, a party may hWhen payment is owed based on a contract or quasi-contract, a party may have more than one remedy. An experienced business attorney can advise regarding the best option based on the particular circumstances. Similarly, when a party is sued, a skilled attorney is necessary because the defenses will vary depending on the nature of the claim.
Since a properly executed written contract offers the best protection to both parties, it is important to consult an attorney before entering into any agreements, verbal or written, to ensure all terms are appropriately documented and enforceable.
