What is a Contract Dispute?

February 8, 2024 • Contract Management • 7 minutes

Understanding contract disputes is crucial in business litigation, as they can significantly impact the operations and legal standing of your business. These disputes often arise from misunderstandings, failures to fulfill obligations, or disagreements over the contract terms.

Whether a dispute arises over a real estate agreement, an employment contract, or any other type of contract, effectively handling it is essential for maintaining your business’s integrity and relationships. So let’s explore how disputes arise, and how to handle them when you encounter them.

What is a contract dispute?

A contract dispute is a disagreement between parties over the terms or performance of a legally binding contract, such as a master service agreement (MSA). It arises when at least one party believes another has failed to fulfill their contractual obligations, leading to a conflict that may require legal resolution.

The nature of a contract dispute often hinges on whether the breach of contract is material or minor:

  • A material breach of contract significantly affects the contract’s core purpose and may justify legal action or contract termination.
  • A minor breach of contract, while still a violation, does not typically undermine the entire agreement and often results in less severe consequences.

Clear, precise, and mutually understood terms can prevent misunderstandings that lead to disputes. When a dispute arises, these terms become the standard against which the parties’ actions and responsibilities are measured, influencing the resolution process.

How do contract disputes arise?

Contract disputes can arise for a wide variety of reasons. Here are some of the most common.

Non-fulfillment of obligations

A primary cause of contract disputes is when a party fails to fulfill their contractual duties. This can include not delivering a product or service on time, not paying on time, or failing to meet quality standards.

Misinterpretation of contract terms

Disputes often arise from different interpretations of what the contract terms mean, leading to disagreements about what each party is expected to do.

Change in circumstances

Sometimes, changes in market conditions, company status, or unforeseen events can impact a party’s ability to fulfill their contract, leading to disputes.

Types of contract disputes

Contract disputes fall into a variety of categories. In general, three of the most common types of disputes are as follows:

Business contract disputes

Disputes in business contracts often revolve around the delivery of goods or services, payment terms, or confidentiality agreements.

Real estate contract disputes

In real estate, disputes can arise from issues like property defects, breach of sale terms, or lease agreement violations.

Employment agreement disputes

Common disputes include disagreements over employment terms, salary or benefits, wrongful termination, or workplace conduct.

Impact of non-compete agreements

When employees fail to sign or violate non-compete agreements, it can lead to significant disputes. These agreements are designed to protect a business’s proprietary information and competitive interests. As a result, violations can lead to legal challenges, often involving accusations of unfair competition or breach of contract.

Who can dispute a contract?

The parties eligible to dispute a contract depend on the type of contract and the nature of the dispute. Common parties in a dispute include the following:

Businesses

Companies involved in a business contract can dispute it if they believe the terms have been breached or misinterpreted.

Individuals

Private individuals party to a contract, such as in a real estate or personal service agreement, can also raise disputes.

Employees

Employees can dispute employment contracts, particularly in cases involving terms of employment, dismissals, or non-compete clauses.

Legal standing in a contractual dispute

Legal standing in a contractual dispute refers to a party’s right to bring a dispute to court. To have standing, a party must demonstrate they have suffered or are in immediate danger of suffering a direct and substantial injury as a result of the alleged contract breach.

Factors influencing the ability to dispute a contract

A wide array of factors can influence the ability to dispute a contract, depending on the type of contract and the nature of the dispute. Common factors involved in a dispute include the following:

Contractual Relationship

Only parties who are directly involved in the contract and bound by its terms typically have the standing to dispute it.

Proof of breach

A party must be able to show evidence of a breach, whether it’s a failure to deliver a service or pay, or a violation of specific terms.

Damages incurred

To dispute a contract, the challenging party usually needs to demonstrate that they have suffered damages or losses due to the breach.

Timeliness

Disputes must be raised within the applicable statute of limitations, which varies depending on the contract type and jurisdiction.

Contract dispute examples

Below are three examples of contract disputes that might occur in the real world.

Example 1: Breach of business contract

  • Example: A supplier fails to deliver goods to a retailer as per the agreed schedule, impacting the retailer’s sales.
  • Analysis: This dispute typically centers on non-fulfillment of delivery obligations. The retailer can seek compensation for losses incurred due to delayed or absent delivery. The resolution might involve renegotiation of the contract terms or financial compensation.

Example 2: Real estate disagreement

  • Example: A buyer discovers significant undisclosed property defects after purchase.
  • Analysis: This type of dispute often involves misrepresentation or failure to disclose critical information. The buyer might seek to rescind the sale or receive compensation for the cost of repairs. The resolution could involve legal action if the seller knowingly hid the defects.

Example 3: Employment contract issues

  • Example: An employee is terminated and claims the action was in breach of their employment contract.
  • Analysis: This dispute could revolve around wrongful termination or breach of the agreed terms of employment. The employee might seek reinstatement, compensation, or other remedies. The resolution may depend on the specifics of the employment contract and the circumstances of the termination.

How to dispute a contract step-by-step

Here’s a step-by-step guide to disputing a contract, if you find yourself involved in an agreement you believe has been breached.

1. Identify the breach and review the contract terms.

  • Carefully review the contract to confirm a breach has occurred.
  • Gather evidence to support the claim of breach, such as emails, documents, or witness statements.
  • Clearly identify the specific terms or clauses you believe have been breached.

2. Attempt negotiation and alternative dispute resolution.

  • Reach out to the other party to discuss the issue and attempt an amicable resolution.
  • Consider mediation or arbitration as methods to resolve the dispute without resorting to litigation.
  • Document all communication and agreements during this phase for future reference.

3. File a lawsuit if absolutely necessary.

  • If negotiation or alternative dispute resolution fails, determine if litigation is the right course of action.
  • Consult with a legal professional to understand the merits of your case and the legal process involved.
  • File a lawsuit in the appropriate court, ensuring adherence to legal procedures and timelines.

4. Navigate the litigation process with professional guidance.

  • Prepare for the legal proceedings, including discovery, where both parties exchange relevant information.
  • Be ready for possible court appearances, hearings, and providing testimony.
  • Work closely with your legal team to develop a strong case, adhering to court procedures and deadlines.

Proactive contract management and open communication can often prevent disputes — but when they do arise, knowing the steps to resolution is key. Whether through negotiation, alternative dispute resolution, or litigation, addressing these disputes promptly and strategically will help protect your rights and interests.

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