Cause of action: Definition, Example and Related Terms
What is Cause of action ?
For example, let's say you own a company that makes widgets. You have a contract with another company to supply you with the parts you need to make your widgets. If that company suddenly stops delivering the parts without any reason, that is your cause of action. You can now go to court and say, 'Hey, they broke our contract, I want to be compensated for the damages I suffered because I couldn't make and sell my widgets.'
But it's not enough for something bad to happen for a cause of action to exist. The event or action must be recognized by the law as a wrong. Not everything that seems unfair or wrong can be a cause of action. The law decides what can be a cause of action. For example, if the same company stopped supplying the parts because a natural disaster destroyed their factory, you might not have a cause of action. The law understands that there are some things beyond our control and does not hold us responsible for them.
Also, a cause of action is not the lawsuit itself. It is the reason for the lawsuit, the grounds on which the lawsuit is based. Sometimes, a single event can give rise to multiple causes of action. For example, if a contractor intentionally uses substandard materials in breach of a building contract, causing the building to collapse, the building owner might have causes of action for breach of contract, negligence, and even fraud against the contractor.
Understanding cause of action is very important for a contracts manager. It helps them in assessing the risks associated with a contract, planning for those risks, and dealing with disputes when they arise. Contracts managers also need to understand that a cause of action must be raised within a certain time limit, known as the statute of limitations. If you wait too long, you might lose your right to sue.
Example(s)
Scenario Description A software developer is hired to create a custom software for a company. The contract states that the software should be completed and delivered within six months. However, the developer fails to deliver the software within the agreed time. In this case, the company has a cause of action against the software developer for breach of contract. The developer's failure to deliver the software within the agreed time is a breach of the terms of the contract, giving the company the legal right to demand a remedy, like enforcing the contract or asking for damages. A company contracts a supplier to provide it with raw materials. The contract includes a clause that the supplier should not supply those raw materials to the company's competitors. The supplier breaches this clause and sells raw materials to a competitor. Here, the company has a cause of action against the supplier for breach of contract. The supplier's action of selling raw materials to a competitor in breach of the contract terms gives the company the legal right to demand a remedy. The company can sue the supplier for damages it suffered as a result of the supplier's action.