LinkedInLinkedIn

Keeping “standing” and “capacity” in a breach of contract case separate.

05.11.2021

In any legal dispute, one of the first things an attorney must do is determine whether the claimant has the right to sue the defendant. In other words, the claimant must have both standing and capacity. While this is a basic principle, practitioners and courts far too often confuse the two terms, often lumping them together as “standing”. But it is important to understand the distinction between the terms to avoid potential malpractice woes.

A party has standing when he is personally aggrieved, regardless of whether he is acting with legal authority. Standing is a component of subject matter jurisdiction and can never be waived. On the other hand, a party has capacity when he has the legal authority to act and recover. Unlike standing, capacity is a procedural matter, and an argument that an opposing party does not have it to participate in a suit can be waived if not challenged via Texas Rule of Civil Procedure 93.

This distinction often gets confused in breach of contract cases. While the question of whether a party is entitled to sue on a contract is often informally referred to as a question of “standing,” it is not a standing issue because it does not affect the court’s jurisdiction. Instead, it is a decision on the merits. A consumer aggrieved by an upstream manufacturer has standing to sue it for any cause of action he wants to. But whether he has capacity (aka legal authority) to do so under a breach of contract claim is a different issue.

Unlike standing, capacity is a procedural matter, and an argument that an opposing party does not have it to participate in a suit can be waived if not challenged via Texas Rule of Civil Procedure 93.

For example, assume a homeowner begins experiencing water leaks around his windows and alleges the contractor poorly installed them and the manufacturer poorly built them. He sues both for breach of contract. The homeowner has standing to sue both the contractor and manufacturer because he is personally aggrieved by the defective windows—poor installation or poor manufacturing. He also has capacity to sue the contractor because that is who he had a contract with. But the homeowner lacks capacity to sue the manufacturer for breach of contract because they did not have a contract. This could have big effects on both parties.

If the manufacturer follows Rule 93 and challenges the homeowner’s capacity, then it could eliminate a cause of action that may allow the homeowner to win his attorney’s fees. Eliminating this possibility takes away an avenue of recovery and significantly lowers the top end of the homeowner’s damage model.

But if the manufacturer fails to file a verified pleading challenging the homeowner’s capacity until on appeal, then the manufacturer has waived the argument. Any judgment in favor of the homeowner on breach of contract stands.

Related News
View All