A Complete Guide to Contract Disputes
Contracts allow people and businesses to formalize agreements so everyone understands their legal obligations and benefits. However, even after all of the parties involved sign a contract, they sometimes disagree over definitions, terms, or conditions. These contract disputes make it hard to do business, slow down the delivery of goods or services, and even lead to expensive court battles. By planning ahead and using the right tools, you can either avoid contract disputes or make them easier to resolve.
What Is a Contract Dispute?
A contract dispute is a disagreement over the interpretation, execution, or terms of a legally binding contract. Contract disputes can occur in any environment in which people use contracts, including business transactions, employment, real estate, and services.
The parties in personal or commercial contract disputes can disagree over issues such as how one party performed their obligations, the quality of goods and services delivered, the payment terms, contract duration, and what will happen if one party wants to terminate the contract.
Causes of Contract Disputes
Almost any disagreement over legal issues can lead to a contract dispute. However, the most common causes of disputes include the following.
Ambiguous or Vague Terms
Unclear language is one of the biggest causes of contract disputes. Disagreements are common when the contracting parties or contract lawyers use vague terms that can have multiple meanings. Terms like “appropriate measures” or “reasonable time” that aren’t clearly defined can lead to different interpretations of what constitutes appropriate or reasonable.
People can also disagree about language when key terms or jargon aren’t clearly defined. Each party may define the terms differently based on their own experiences.
Sometimes people set up contracts with overly complex language that’s difficult to understand. Whether it’s “legalese” or other industry-specific jargon, complicated language is harder for all parties to interpret accurately.
Some contracts contain clauses or provisions that conflict with each other. When this happens, the parties can’t tell which prevision should be the top priority. A related issue is contracts that lack detail or fail to address certain aspects of the agreement. These can lead to disputes when unanticipated situations arise and the parties aren’t sure how to address them.
Failure to Fulfill Obligations
Another common cause of legal disputes is when one or more of the parties don’t fulfill their legal obligations under the contract. This failure can cover a wide range of issues, from not delivering goods or services on time, not paying in full or on schedule, to not meeting the specified quality standards.
There are several different contract dispute examples, including:
- Non-performance: This is when a party completely fails to perform their part of the contract, such as not delivering a product or service.
- Partial performance: Here, a party may fulfill some, but not all, of their contractual obligations. Partial performance can include delivering part of an order or completing some of the services agreed upon.
- Late performance: Delivering promised goods or services late is a type of failure to fulfill obligations. It can affect the other party’s operations or cause financial loss.
- Substandard performance: This occurs when the goods or services provided don’t meet the quality standards specified in the contract. Substandard contract performance can range from minor defects to delivering useless goods.
Breach of Contract
A contract breach occurs when one party violates the terms and conditions of a contract. Breaches of obligation of contracts can include issues such as not delivering the agreed-upon products or services, not delivering them on time, or not delivering them up to standard. You can categorize breaches by their severity and impact on the contractual relationship. Each type of breach has specific remedies for breach of contract.
There are different types of breaches, including the following:
- Material breaches: These violate the entire contract. If you ordered trumpets and received flutes, it’s a material breach. In the event of a material breach, the non-breaching party can terminate the contract and seek actual and punitive damages.
- Minor breaches: These occur when the infraction is less severe. It might involve aspects outside the contract’s main purpose. The non-breaching party may be able to claim damages.
- Anticipatory breaches: An anticipatory breach, also called anticipatory repudiation, happens when one party indicates in advance that they will not fulfill their contractual obligations. This allows the non-breaching party to treat the contract as breached and seek remedies before the contract is actually breached.
- Actual breaches: These occur when a party fails to fulfill their obligations by the agreed-upon deadline or performs incompletely or inadequately according to the contract terms.
Misrepresentation and Fraud
If one or more parties commit fraud or misrepresent something when signing a contract, the other parties can dispute it. In some cases, it can invalidate or nullify a contract. Both fraud and misrepresentation involve false statements or deceptive practices, but they differ in intent, consequences, and the remedies available to the wronged party.
Misrepresentation is when one party makes a false statement to get the other party to sign the contract. The false statement must be a significant reason that the other party signed the contract. Misrepresentation can be innocent if the misrepresenting party believed the statement to be true. It can also be negligent or fraudulent.
If the misrepresenting party knew the false statements were false, it’s fraudulent. If they should have known but didn’t, it’s negligent.
Fraud is a more serious allegation than misrepresentation because it involves intentional deception to obtain unlawful gain or to deprive a victim of a legal right. For a claim of fraud to be successful, the victim must prove that the other party made the false statement with the intent to deceive them and that they relied on this to decide on signing the contract.
The Legal Framework of Contract Disputes
A contract has to be legally enforceable before someone can dispute it. Only contracts that contain certain elements are enforceable. If all of these elements are in place, the party that is initiating the contractual dispute needs to provide evidence of a breach.
Key Legal Principles Governing Contracts
The following elements are necessary to create an enforceable contract according to contract law:
- Offer and acceptance: Parties create a contract when one party makes an offer that another party accepts. This mutual agreement is necessary for a binding agreement.
- Consideration: This refers to the value the parties exchange in a contract. It can be anything of value, such as goods, services, or a promise. Without consideration, a contract isn’t legally binding.
- Capacity: All parties must have the legal capacity to enter into a contract. This generally means they must be of a certain age, usually 18 or older, and have the mental ability to understand the contract’s terms.
- Legality: The contract’s purpose must be legal. Contracts for illegal activities are not enforceable.
- Awareness: The parties must intend for the agreement to be legally binding. Generally, social or domestic agreements are not considered to have this intention.
The Role of Evidence in Contract Disputes
In contract dispute cases, the injured party will usually need to present evidence to prove a breach of contract. Common types of evidence include:
- Contractual documents: This includes the actual contract and any related documentation, such as emails, letters, and memos, that outline the terms and conditions agreed upon by the parties.
- Witness testimony: Statements from individuals can provide firsthand accounts of the negotiations, agreements, or breaches.
- Expert evidence: Specialists in a particular field can provide insights into technical aspects of the contract, such as the quality of workmanship in construction disputes.
- Financial records: Invoices, receipts, bank statements, and other financial documents can prove damages or show whether one party made payments according to the contract terms.
- Behavioral evidence: The actions and communications of the parties before, during, and after the contract’s formation can indicate their intentions and whether there were any breaches.
How To Avoid Contract Disputes
Taking the time to craft clear and thorough contracts is the best way to avoid needing an attorney for contract disputes. The following standards will help you create contracts that all parties can clearly understand so there’s less chance for misunderstandings.
Use a Clear and Concise Contract
When contracts are straightforward, parties are more likely to comprehend their responsibilities and rights fully, leading to better compliance with the terms of the agreement. A contract that is easy to understand also reduces the need for extensive negotiations and explanations. It will save you time and legal expenses by minimizing the likelihood of contractual disputes.
You can create clear and concise contracts by avoiding legal jargon and complicated vocabulary. Instead, use simple, direct language that people without a legal background can easily understand. If you have to use technical terms or jargon, define them clearly within the contract. A definitions section can help everyone understand the terminology used in the contract.
Organize the contract in a logical flow, with a clear hierarchy of clauses and headings that guide the reader through the document. A well-structured contract makes it easier to find information and understand the agreement’s framework.
Be Specific About Deliverables and Deadlines
Being specific about deadlines and deliverables helps to manage expectations, reduce ambiguity, and provide a solid basis for evaluating performance. Define exactly what each party needs to deliver. Both the provider and the recipient should have the same understanding of the expected outcomes.
Set realistic deadlines for each deliverable, taking into consideration the complexity of the work and any other factors that might affect timing. You can also include provisions for reviewing and adjusting deadlines if necessary due to unforeseen circumstances.
For complex projects, break down the work into smaller, manageable milestones with specific deliverables and deadlines to help keep the project on track and provide opportunities for review and adjustment along the way. Define clear acceptance criteria for each deliverable by stating who will evaluate it and what criteria they’ll use.
Include Dispute Resolution Clauses
There’s no way to plan for every possibility, so disputes can happen no matter how carefully you craft a contract. By anticipating and planning for potential disputes, you can save time, reduce costs, and preserve business relationships. Dispute resolution clauses specify the process that the parties agree to follow in the event of a dispute. The goal is to resolve disagreements efficiently and effectively without resorting to litigation.
The following are the most common types of dispute-resolution clauses:
- Negotiation clause: This clause requires the parties to attempt to resolve their dispute through direct discussions before pursuing other forms of dispute resolution. It’s often the first step in the dispute resolution process, promoting open communication and collaboration.
- Mediation clause: Mediation involves a neutral third party who facilitates discussions between the disputing parties to help them reach a voluntary agreement. The mediator does not make a decision but helps the parties find common ground.
- Arbitration clause: Arbitration is a more formal process in which one or more arbitrators hear the arguments and evidence from both sides and then make a binding decision. Arbitration can be faster and more flexible than court litigation but still provides a conclusive resolution.
- Multi-tiered dispute resolution clauses: These clauses combine several methods, typically starting with negotiation, followed by mediation, and finally, arbitration if the dispute remains unresolved. This approach encourages parties to resolve disputes amicably at an early stage but still provides a mechanism for a binding resolution if necessary.
Document Everything
Keep detailed records of all communications, amendments to the contract, and any other relevant interactions between parties. This includes emails, meeting notes, and phone call summaries. Documentation can provide clear evidence of the parties’ intentions and agreements throughout the project, which can help clarify misunderstandings or defend positions.
Ensure Clarity and Legality With Electronic Signatures
Electronic signatures can simplify the process of creating clear and binding contracts. All of the parties can quickly sign contracts when the details are fresh in their minds. You can upload your contract to the cloud and send it to all parties at the same time. E-signatures are legally binding and eliminate the need to print and deliver contracts for signatures.
How jSign Can Help Prevent Contract Disputes
jSign automatically stores your contracts online so you can access them whenever needed. Because it’s built on blockchain technology, you’ll know immediately if anyone has changed any part of a contract after it’s signed. Additionally, geolocation capabilities help prevent fraud. You’ll know the location of each signer and whether they used a home computer or mobile device. jSign makes electronic signing easy for all parties. Reach out today to learn more.
