Common Causes of Contract Disputes and How to Avoid Them
Among the many improvements made by the innovation of the Internet is the reduction in paper use for businesses. Email has replaced the fax, and uploads do away with the need to make copies. Of course, just because a lot of the paperwork is now digital, there remains the need for numerous pages of business contracts and every one of those pages needs to be thoroughly reviewed and vetted by both parties who intend to sign the contract.
As every first-year law student learns, “a contract is an agreement between two parties that creates an obligation to perform or not perform a particular duty.” There are contracts to start, expand, or dissolve a business. There are also contracts between employees and employers, vendors and businesses, and landlords and tenants.
The goal of every contract is for it to be legally binding, but that doesn’t mean there aren’t any disputes after the contracts are signed. When disputes arise, it is important to obtain the counsel of attorneys with business contract experience. You don’t have to have the lawyer who drew up the original contract to help sort out the dispute.
It is important to understand what the common causes of contract disputes are and how to avoid them:
1. Ambiguous Contract Language
When a contract has ambiguous language, it is open to interpretation. That leads to conflict. For example, a contract might stipulate that a project is completed “in a timely manner.” One side might think “timely” is five business days, while the other side believes that could mean several months.
Using precise language that clearly defines all the terms, deadlines and responsibilities is crucial for avoiding disputes. You and your attorney should look for vague phrases like “reasonable time” or “best efforts.”
2. Failure to Fulfill Obligations
Another common source of a contract dispute is the failure of one party to fulfill obligations. They might claim they misunderstood a clause (see above), or they might have been incapable of delivering as promised. If your business depends on a specific delivery date for products and your vendor fails to meet those obligations, that can directly impact your business, and you’re entitled to seek a remedy.
Avoiding this type of dispute requires due diligence from both parties. If you are expecting a delivery, you need to check in with the other party to ensure they are on schedule. On the other hand, if you are making the delivery but are running into problems, you need to alert the recipient. If both sides are informed, they can make allowances that wouldn’t trigger an official dispute.
3. Fraud
There are many contracts that depend on facts, figures, and projections. This is especially true when the contract pertains to purchasing a business. If any of those values are intentionally misrepresented, it can be a clear case of fraud. This can be easily avoided by verifying all claims in the contract with an independent source.
4. Disagreements Over Payment Terms
Payment disputes crop up when one party expects a certain amount but does not receive it. This often arises when there are either structured payments or payments based on some performance formula. This goes back to the issue of contract language that is not clear. It will help to clearly define the payment schedule, payment methods, and specific amounts due.
5. Breach of Contract
A breach of contract happens when one party fails to perform the duties stipulated in the contract. The person who is in breach might have reasons why they breached that seem justifiable. However, a breach is a breach. One of the ways to avoid this type of dispute is to build into the contract clauses that provide steps to take to resolve a breach. That can mean setting up arbitration or paying a set amount.
6. Changes in Circumstances
Contracts are often drafted based on current circumstances. What happens if those situations change? If there is a change in market conditions or company capabilities it can effectively cancel a contract. For instance, you could contract with a company overseas to provide a product. If their factory burns down, they can no longer provide the product. This is when the force majeure clause comes into play.
A force majeure is also sometimes referred to as “Act of God.” It covers extreme events outside of any contract party’s control. Having your commercial litigation attorney include this clause in the contract will ensure both parties are protected.
Resolving Disputes
Signing contracts is an accomplishment. It means both parties have agreed to the clauses, and hopefully, they will benefit from the contract. When disputes arise after the signing, it is important to find a fast resolution.
Whether you are being sued for a dispute or you want to initiate a claim, you’ll want the support of Hendrickson & Long, PLLC. We have years of experience helping clients in all types of businesses to settle disputes in a fair and equitable manner.
