A contract is a legally binding agreement between two parties, which obligates those parties to perform specific acts. In order for the contract to be enforceable, each party must exchange something of value, or “consideration.”
Additionally, all involved parties need to have a solid understanding of every term of the contract; and, they must be in mutual agreement on the terms. Therefore, a contract dispute occurs when any party involved in a contract has a disagreement regarding any of the contract terms or definitions.
In contract law, a contract dispute is generally considered a breach of contract. A breach of contract is when the agreement is not kept due to one party failing to fulfill their obligation according to the terms of the contract.
There are two main types of breach of contract:
- Material Breach of Contract: A material breach of contract is a breach in which the agreement is considered “irreparably broken” due to the breach being so crucial and deep that it renders the purpose of making the contract totally useless.
- This is sometimes referred to as a total breach. The non-breaching party does not have to perform their end of the contract, and they can sue the breaching party in return for any damages caused by the breach; and
- Minor Breach: A minor breach is sometimes referred to as a partial breach, and occurs when the breach does not affect the heart of the contract. Both parties are required to still carry out their obligations, but the non-breaching party may still sue for damages.
In order for a contract to be valid and legal, the following elements must be met:
- There must be a valid offer;
- An acceptance of that offer; and
- Some form of consideration for the goods or services at issue
Contract disputes may occur during any of the elements mentioned above. Commonly, contract disputes are due to:
- Issues with drafting and reviewing a contract, such as during the discussion regarding terms and conditions;
- Offer and acceptance disputes;
- Mistakes and errors made concerning the terms of the contract;
- Disagreements as to the meaning or definition of a technical term included in the contract; or
- Fraud or coercion, such as a party being forced or tricked into signing the contract.
Even if a contract is properly formed, there may be disputes, such as disputes regarding the performance of contract duties. Further, if a party fails to perform their agreed upon obligations, there may be grounds for a legal dispute.
For example, if a seller fails to deliver the goods or services that were purchased by the buyer, then the buyer may seek out various legal remedies for non-performance of the sales contract.
Generally, there are two main options as remedies for contract disputes:
- Legal Remedies: Types of damages available for a breach of contract include compensatory damages (the breaching party pays the promised party what was promised elsewhere in the contract), restitution (the breaching party is required to pay the other party back), and liquidated damages (agreed upon damages that the parties agree to pay in the event of a contract breach); or
- Equitable Remedies: Equitable remedies are legal remedies that allow the non-breaching party to recover monetary damages. Equitable remedies are actions that the court prescribes for the purpose of resolving the breach of dispute. Usually, this entails the parties taking certain actions to correct errors or perform their contract duties.
In most cases, the parties will be given the choice of either legal or equitable remedies.
The best way to avoid contract disputes is to be clear on the contract terms. Also, in some instances, it can come down to one single word or definition contained within the contract. Being very clear in the duties of the parties in the contract is extremely important. Defining highly technical words or trade terms can help you avoid contract mistakes and misunderstandings.
Continually documenting negotiations through writings is important, and you should document negotiations of the contract at each step of the way. This means you should keep track of the history of offers, amount of product, prices, and other important terms will help minimize any later disputes related to forgetting some of the terms of the contract.
The final contract should also, obviously, be in writing. There will be some estimating and negotiating, so all finalized amounts should be stated specifically during contract drafting.
Be especially careful in cases where you are working with a new negotiator, or when a product changes. Checking for personnel credentials, as well as double checking the terms to avoid contract fraud, are essential to avoiding contract disputes and breaches.
Additionally, knowing the goal of the contract before entering an agreement is vital to avoiding disputes. You should be able to state each negotiating point very clearly, such as selling price, product quality, etc.
Working with a professional, such as a knowledgeable and qualified business attorney, can help things run more smoothly during negotiations. They will also help minimize delays and additional legal disputes.
Contract disputes can involve many different legal concepts and will require a working knowledge of contract law. Additionally, your attorney will represent you in court, as well as helping determine what remedies might be available to you.