Contracts are legally binding agreements between two or more parties which outline the duties and responsibilities of all of the parties. A contract can be oral or written, but most contracts are required to be in writing to be legally enforceable.
Examples of contracts which are required to be in writing include marriage contracts and contracts which involve an amount of money greater than $500. An oral contract is more challenging to enforce and should be avoided when possible.
In order for contracts to be legally enforceable, certain requirements must be met, including exchanging something of value. In addition, all parties that are involved in the contract are required to have a solid understanding of all of the contract terms and must be in mutual agreement.
Contract disputes arise when a party involved in a contract disagrees with a term or definition which is contained in the contract. In general, a contract dispute may involve a breach of the contract.
A breach of contract occurs when one party fails to fulfill their obligations according to the terms of the contract. A contract dispute can typically be categorized as one of two types of breach, including a material breach and a minor breach.
A material breach occurs when a contract is completely and irreparably broken. The breach is so severe that the rest of the contract is rendered completely useless and there are no other terms which can be fulfilled.
Material breaches can also be referred to as total breaches. The non-breaching party is not required to fulfill their contractual obligations and they can sue the breaching party for any damages which are caused by the breach.
An example of a material breach occurs when a party purchases a home and completes all of the steps necessary to obtain ownership. The seller then suddenly decides not to sell the home or refuses to hand over the deed and keys to the home. This is a material breach because it renders the contract useless.
A minor breach can be referred to as a partial breach. Minor breaches occur when the breaches do not affect the entire purpose of the contract.
The parties are still required to fulfill their contractual obligations when there is a minor breach. The non-breaching party, however, may still be entitled to sue the breaching party for any damages which occurred.
An example of a minor breach occurs when a homeowner contracts with an electrician to install a new lighting system with a specific brand of wiring. If the electrician installs the lighting but with the wrong brand of wiring, it would be considered a minor breach because the overall goal of the contract was fulfilled, but not according to the specific provisions.
How Can You Avoid a Contract Dispute?
The best way to avoid contract disputes is to ensure that all parties are in agreement prior to signing a contract. All of the parties involved should clearly understand and agree to all of the terms which are included in the contract.
Any language which is used in the contract should clearly state the duties of all of the parties involved. Any technical words or trade terms should be clarified and defined.
Any vague or ambiguous terms or language which has multiple meanings may lead to a dispute in the future. Another way contract disputes may be avoided is to continually document any negotiations in writing.
Negotiations should be documented every step of the way, which may include keeping track of:
- The history of offers;
- The amount of product;
- The price of the product and
- Other important terms.
This documentation may minimize later disputes which involve forgotten contract terms. As previously noted, one of the best ways individuals can avoid contract disputes is to ensure that the contract is in writing.
Having a contract in writing provides physical proof of the contract terms as well as clarifies and details the overall goal of the contract. Knowing the goal of the contract prior to entering into the agreement is crucial to avoiding a later dispute.
What is the Contract Dispute Act?
The Contract Dispute Act governs claims which involve United States Federal Government contracts. It also defines various procedures which should be followed if the federal government has a claim against an independent contractor.
For example, if the federal government claims that a contractor committed fraud, pursuant to the Act, the federal claim against the contractor has to be submitted for special review, which is conducted by the United States Contracting Office. Claims regarding contract disputes are required to be in writing.
Claims which are submitted by a contractor above $100,000 must:
- Have been made in good faith;
- Supported by accurate data; and
- Must represent a reasonable estimation of the amount which the government owes.
What Remedies are Available for a Contract Dispute?
There are two main categories of remedies which may be available in a contract dispute, legal remedies and equitable remedies. A legal remedy may include:
- Compensatory damages;
- Restitution; and
- Liquidated damages.
There are some contracts which contain liquidated damages clauses. These clauses determine, in advance, the amount of damages which should be paid if a party breaches the contract. The parties agree upon the damages figure during their contract negotiations.
Equitable remedies are legal remedies which allow a non-breaching party to recover monetary damages and may include actions which the court orders for the purpose of resolving the dispute. An equitable remedy typically requires a party to take certain actions in order to correct errors or perform their duties under the contract.
Equitable remedies are typically used to resolve substantial breaches of contract when an award of money damages would not be sufficient to resolve the issue or to protect the parties from harm. It is important to note that equitable remedies are typically not available as an option unless the party is able to demonstrate to the court that legal damages would not resolve the issue.
Can I Obtain Both Legal and Equitable Remedies?
Usually, the non-breaching party is required to seek a legal remedy before a court will consider granting an equitable remedy. In other words, if the parties are unable to show that money will not resolve their contract dispute, they will likely not be eligible to receive an equitable remedy.
There are also certain situations where one party to a contract may be able to receive monetary compensation pursuant to the rules of equity, called restitutionary damages. Restitutionary damages are very specific and limited to specific types of damages in a breach of contract case.
Restitutionary damages are used to prevent a party from being unjustly enriched due to the breach. For example, if the non-breaching party already delivered the goods specified in the contract but the buyer has not paid for them yet, the court may order the breaching party to pay restitutionary damages so they do not receive the agreed-upon benefit for free and at the expense of the other party.
Do I Need a Lawyer if I Have a Contract Dispute?
It is essential to have the assistance of a contract attorney for any issues, questions, or concerns you may have related to a contract dispute. Your lawyer can assist during all steps of contract formation, including negotiation, drafting, and reviewing to ensure that the contract is valid and enforceable.
If a dispute arises related to your contract, your attorney can represent you during settlement negotiations and represent you in court.