Breach of Contract/Promissory Note The Economics of Collections

Learning about the economics ahead of time may make you build protections into your next contract or retain an attorney to help you draft the contract to make it more economical for you to use an attorney to collect, should you ever require ones services.

Although it may appear simple and straightforward, should you choose a legal option, collecting on a breach of contract usually becomes a tedious, convoluted chore best left to an attorney

Savvy debtors often rely on the expense of litigation to avoid collections altogether.

because you must follow the proper procedures. An attorney knows best how to navigate the options and present you the potential risks and rewards. Below read about some of the general steps involved with collections that may help you decide whether or not to enter into a contract to begin with and how to think about crafting contract terms to protect your investment, should you ever need to make a collections claim.

Notification – Demand Letter

On any breach of contract matter, before taking any legal action, or as a prelude to legal action, you may want to send a demand letter even though no rules mandate the step. The letter should set out the facts, explain why the party should pay the money, set a deadline for payment, explain exactly what you expect, and, if they fail to pay, the actions you intend to take. Demand letters sometimes offer a catalyst to negotiations that result in an agreeable solution without a court action.

Notification – Demand Letter
• Small fee or no fee
• Motivated debtors like to respond
• Clearly sets out the facts in play

• Debtors likely to ignore
• Provides little or no legal recourse
• Citing law comes best from a lawyer

• Send the letter both regular post and certified, return receipt requested

Although you may write your own demand letter, as attorneys, our clients ask us to write demand letters that also include a general overview of the law. At Acebedo & Johnson, LLC, we sometimes offer a demand letter service for a flat fee. The service includes the necessary research, drafting and delivering the letter both certified and regular post, and a few follow up phone calls if needed. Anything beyond that, like drafting additional documents or any other instruments, contacting third parties, process service fees, and filing fees or other costs/expenses, requires a retainer and payment at our hourly rates.

Mediation – Small Claims

While it requires some modestly complicated steps, Small Claims Court offers a forum for claims of $5,000.00 or less. Attorneys may not attend small claims proceedings and, after providing the necessary information and a filing fee, your action becomes a matter before the Court. Some of the information you need to provide includes the names and addresses of the parties, the amount owed, the date the amount became due, and the reason for filing the claim. This information allows you to draft the Summons and Complaint.

As the next step, the rules require you to serve the Summons and Complaint upon the opposition by a party other than yourself (a step required at all levels). The party performing the service must file a Declaration of Service with the Court after completing the service. Professional process service companies generally charge a fee for this service but a friend or associate may perform this for you too.

Mediation – Small Claims
• Small fee or no fee
• Mandatory mediation
• No attorneys allowed

• Must serve Complaint and Summons
• No court enforces a judgment
• $5,000.00 or less in dispute

• Even if you win the opposition may not pay without further legal action

Before a judge hears arguments, Small Claims Court sets all matters for mediation with a neutral third party to attempt to reach a compromise to settle the matter and eliminate the need for a trial. Should the parties fail to agree at mediation, the Court schedules a trial and the parties make their arguments. Should you prevail and win a judgment, the opposition may continue to refuse to pay.

Litigation – District Court & Superior Court

In the state of Washington, if your claim exceeds $5,000.00 or reaches up to $75,000.00, District Court probably provides your best forum. Superior Court cases for breach of contract start at a minimum claim of $50,000.00. As with Small Claims Court, starting a case in Pierce County District Court or Superior Court requires a filing fee.

Usually your claim starts with an initial consultation with an attorney to review your facts and make certain your case holds merit. Although you may represent yourself in any court as a pro se litigant, hiring an attorney at this point probably serves you best. If you hire an attorney, they usually draft the Summons and Complaint, open the case wand file them with the appropriate Court on your behalf, and send them out for professional service on the opposing party.  Despite the fact most
attorneys charge over $150.00/hour depending on experience, an attorney knows best how to navigate the local court rules, procedures, and the laws, which usually saves you money in the long run.

Litigation – District of Superior Court
• Modest filing fee for the District Court
• Free initial consultation with attorney
• Pressures the opposition

• Large filing fee for Superior Court
• Attorney’s fees rarely awarded
• Must file in person for District Court

• Dist. Court judgments must transfer to Superior Court for enforcement

If the opposition lives within the state of Washington and fails to file an Answer within 20 days of the service of Summons and Complaint, you may file for a Default Order and Judgment. If the Judge signs the Order and Judgment, this means you win without a trial. If the opposition resides outside the state, you must wait 60 days after service to file for a Default Judgment. Remember, like Small Claims, even if you win at trial the opposition may not pay on the Judgment.

Administration – Supplementary Proceedings

Should you prevail and leave court with a judgment, enforcing the judgment requires further action. In other words, even if you win, the opposing party may continue to refuse to pay despite the Court’s ruling. District Court judgments must transfer to Superior Court for a fee of $20.00 to transform it into an Abstract of Judgment, which you may then record with the auditor’s office for a fee.However, even if you pay the fee to record the judgment at the county auditor’s office, enforcing the judgment requires further action. This process begins by Supplementary Proceedings in Superior Court. Supplementary Proceedings require drafting further documents to file with the Court, at least two hearings, and personal service on the opposition.

Administration – Supplementary Proceedings
• Results in recognizable judgment
• Allows for garnishments
• An attorney may represent you

• Must transfer from District Court
• Extra time allows hiding of assets
• Writs require renewal every 60 days

• The opposition may successfully evade personal service for some time

About two weeks following a hearing to Show Cause, the opposition must appear before the Court with all available financial records and employment information. Then, the prevailing party interviews the opposition about their bank accounts, other assets, financial status, and employment. After the interview the prevailing party may seek a Writ of Garnishment against any bank accounts or wages.


Collecting on a breach of contract takes patience and money. Protect your investments as much as possible by seeking the advice of an attorney when drafting or signing a contract of any kind. Although the short term costs seem unnecessary, if a party defaults on a contract, collecting rarely proves straightforward, inexpensive, and without obstacle. In many cases involving a breach of contract, debtors simply take advantage of the fact that the sum owed makes it economically foolish for you to seek a legal remedy. And, even though most contracts include terms for attorney’s fees for the prevailing party in legal action, Courts rarely award attorney’s fees, and, even then, getting the opposition to actually pay the attorney’s fees requires more work by an attorney.

• Seek the advice of an attorney when drafting or preparing to sign any contract
• Opposing parties sometimes rely on the expense of litigation to avoid paying on a contract
• Courts rarely award attorney’s fees, even when the contract includes a provision for it in the items