Declaratory Judgment and How it Works

Although a great many business law cases have to do with money or payment or repayment, they don’t all. In some cases, there are just two opinions, and we just want a court to tell us what is right. That’s where declaratory judgment comes in.

What is Declaratory Judgment?

Declaratory judgment is asking a court to settle disputes where the rights or obligations of the parties are in doubt. They often happen in relation to contracts which are ambiguous or incomplete or contradictory, where the parties do not know what they have to do or are supposed to do under the contract, and they want a court to clarify it, to help guide their future behavior.

Unlike judgments in most cases, there is no enforcement and nobody has to pay anything or immediately do anything; the judgment just clarifies rights.

When You Can Ask for It

What makes declaratory judgments difficult, is convincing the court that it should issue a declaratory judgment in the first place. That’s because by law, a court cannot give advisory opinions, advanced opinions, or rule on hypotheticals–there must be an actual controversy at stake.

But with declaratory judgment, parties may not have an immediate dispute–for example, maybe nobody has actually breached a contract yet. Rather, the parties may just have differing views on what the contract says or what their rights are.

That means that a party seeking declaratory judgment must convince a court that it is not just looking for legal advice or just the answer to a hypothetical “what if” scenario.

The parties also still must have standing; that is, they stand to be directly affected, win or lose, by the court’s decision. A third party, with no direct interest, cannot ask a court to resolve a dispute between two external third parties.

The party asking for declaratory judgment must understand that there is a chance that the court will rule against them, and be OK with that–after all, “losing” in a declaratory judgment doesn’t immediately result in a judgment that the losing party owes anything to the other party–the judgment just guides future behavior, or helps a party comply with a contract or agreement.

As an example, an insurance company may believe that it does not have to cover a loss, whereas the insured believes that it does. The insurance company can seek declaratory judgment to clarify what it is and is not supposed to do. Even if it loses, the insurance company doesn’t owe any money–it just may have to defend the insured and indemnify the insured, if there is a loss.

The Benefits

One good thing about declaratory judgment, is that no matter how the case ends up, the parties at least know how to guide their future behavior. This can avoid further lawsuits and liability, which is why these actions are usually filed before there is an actual breach or loss by either side.

Questions about your legal rights? Call our West Palm Beach commercial litigation attorneys at Pike & Lustig for help.

Sources:

chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://hcplc.org/files/law-guides/declaratory-judgment.pdf

15thcircuit.com/sites/default/files/court-admin/law-library/forms-download/Declaratory-Judgment-Packet-11-07-2022.pdf