HOW TO HANDLE A BREACH OF CONTRACT
Life is full of transactions small and large, and regardless of what line of work one is engaged in, he will have to handle the problem of some people who do not keep their word with contracts. In some case, particularly in dealing with family or close friends and with small amounts involved, one is likely to just walk away and cease business with the offender. However, in other cases, business and justice demand taking some kind of action. The question then becomes what to do.
The first thing to know is that a contract is formed by an offer and an acceptance. After a valid and credible offer is made (not a joke, but a serious proposal), the acceptance of that offer has formed a contract which "can" be enforced by a court of law. An oral contract, or an offer and acceptance by the spoken word, is still considered a contract which can be enforced. In some contractual situations, like contracts dealing with land or marriage or substantial amounts (each state is a little different in its statute of frauds requirements, so check with an attorney licensed in the respective state), the courts will not accept evidence of a solely oral contract. The courts would require some writing signed by the person who is being sued for the breach. Additionally, if contracts are put in writing the courts will not allow evidence of an oral modification of that contract if it contradicts any provision of the written contract.
This means that even if the contract was between two people solely giving their word to each other, usually that contract can still be enforced. This is particularly the case if other actions by either party would lead a jury to reasonably believe the two had contracted with each other.
If another party breaches the contract, you have some choices as to how to handle the problem, and usually, the decision should be made with business savvy. For example, you would not want to automatically fork out money for an attorney and $150 to file a suit and pay hundreds or thousands of dollars in costs (depositions, experts, etc.) for a breach involving only a small amount. The wise course of action is to confront the person about what is owed and what can be done to redress the breach. This can be a letter, email, or direct confrontation. The next step is to consider hiring an attorney for a legal letter. Most attorneys can write a legal letter without being retained for a relatively small amount, and this might be what it takes to resolve the situation.
If other methods don't work, the law offers cost-effective options. For example, Magistrate Court, sometimes called "people's court" allows for a cheaper filing fee and no discovery costs to bring a case to trial. Though lawyers are retained for Magistrate Court, and I have tried many bench and jury trials in magistrate court, people can reasonably be expected to bring and win a case without retaining counsel for a magistrate case. Magistrate Court allows up to $7500.00 verdicts, so for higher amounts one would have to seek the regular circuit (Court of Common Pleas). In some instances, for example, if the amount in controversy is just beyond $7500, a party could plead for $7500 and give up the other amount to keep the case in Magistrate Court.
Remember that throughout any process being used, parties can settle at any time. During a suit, or even during a trial. Keep in mind that in cases with arguments about the amount of damages it is probably best to compromise a little bit instead of incurring substantial costs in time and resources for litigation and trial. In breach of contract cases, the amount is finite (unlike damages in a personal injury case, which can be substantial due to things like pain and suffering).
Something else to consider: You cannot squeeze blood from a turnip. In other words, you cannot force another party to pay money they don't have. In deciding to bring suit, one must consider what will happen if they win a case in court. If the other party is not insured (insurance will always pay the exact amount in relatively short order), you may end of spending a great deal of time and money attempting to satisfy the judgment. Remember, in America, there is no debtors prison (the near exception to this is that a party owing child support could be thrown in jail for not paying, but that is different from breach of contract). There are ways to bring pressure and eventually even have law enforcement execute to take one's personal goods, but that is long and hard and uncertain.
One last point: If you must bring suit against a small (uninsured) business, it is always best to consider bringing suit against a person involved with the contracting as well. If the judgment is only against the corporation, you will have less leverage than against the person who made the broken promises (and will face a personal judgment affecting his credit and personal property). Again, it is important to assess what can be gained by a suit before bringing it, or deciding to settle for what can be settled.
The main thing is to use both common sense and business sense and you will do fine!