In another article of mine that was published online, I set forth the criteria that you should consider to determine whether it is worthwhile to sue your customer for breach of contract. This article demonstrates how some relatively small changes can completely alter the legal analysis.

In this fact scenario, customer "C" has ordered your custom-made labels for over three years, including one order for 300,000 pieces. That order alone yielded a profit exceeding $60,000. Just after completing C's last order, which was for yet another 300,000 units, you have not been paid despite the passage of several months. To make things worse, C seems to be ducking your phone calls.

You take the next logical step, and start making discreet inquiries with your contacts to find out why C hasn't paid you.  What you find out isn't encouraging: C is in financial trouble because their bank has frozen their line of credit .

Fortunately, before this issue arose, you paid a competent attorney for the limited purpose of re-drafting your sales and order forms, and to counsel your business on what procedures to adopt to prevent customers from denying or refusing to pay for confirmed sales, particularly for contrived claims that the delivered goods did not exactly match the customer's specifications. As a result of these improved procedures, you rightfully believe that you will win a lawsuit against C for non-payment rather handily. So the answer to this question is obvious, right? Not so fast.

Even if you win in Court, you may be left with a pyrrhic victory, because a judgment will probably be uncollectible (see the link for a prime example). In other words, if C can't pay any award, suing may net more money for your small business lawyer than for you.

On the other hand, C's dismal financial situation may add incentive to commence limited legal action to collect on your bill, especially if C will be filing for bankruptcy protection. In this fashion, you will at least preserve your rights as a preferred creditor against C.

From this discussion, it is clear that the question as to whether you should - or should not - sue is very fact-specific, and requires a full and frank discussion with your attorney before deciding your next move. By committing to this one discussion, you will certainly save yourself a lot of time and money in the long run.
Jonathan Cooper
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Non-Compete, Trade Secret and School Negligence Lawyer