ARTICLE
19 April 2024

Understanding Contract Disputes: Strategies For Businesses

Contract disputes among businesses arise from various circumstances, each presenting its own set of complexities.
United States Litigation, Mediation & Arbitration
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Navigating Common Contract Disputes

Contract disputes among businesses arise from various circumstances, each presenting its own set of complexities.

  • The first question to understand is what is the contract? The contract may be written, oral, purchase orders/invoices, emails, or any combination.
  • The second question to understand is did you perform? Did you fully perform, partially perform, or was your performance excused?
  • The third question is understanding what is the breach? Examples of the breach are detailed below, such as failure to perform, failure to pay, ambiguity in contract terms, breach of confidentiality/breach of noncompete, and misrepresentation/fraudulent inducement.
  • The third question is what damages are caused by the breach? Are there are actual damages? Consequential damages? Are they provable? Speculative?

Among the most prevalent types of contract disputes encountered by businesses (e.g. the breach) are:

1. Failure to Perform:

When one party fails to perform its contractual duties with or without a valid excuse, hindering performance or completion under the agreement.

2. Failure to Pay:

When one party fails to pay under the contractual terms, whether with or without a valid excuse.

3. Ambiguity in Contract Terms:

Disputes stemming from vague or poorly defined terms within the contract (written or oral), leading to differing interpretations by the parties involved.

4. Breach of Confidentiality / Breach of Noncompete:

Disputes stemming in the employment, supplier/vendor, and business contexts regarding breaches of confidentiality, noncompetition, poaching, etc.

5. Misrepresentation / Fraudulent Inducement

When one party provides false or misleading information during contract negotiations, leading to misconceptions or misunderstandingsStrategies for Resolving Contract Disputes

To effectively navigate these disputes, businesses should be proactive. Working with a commercial litigation team early on is strongly encouraged.

1. Early Assessment: Prompt identification and assessment of the contractual disputes is key. Understand early what the factual dispute is, what the applicable law is, how the applicable facts apply to the applicable law, what the potential damages are resulting from the breach, and why the parties are taking the positions they are so you can understand the strength of your position.

2. Communication and Negotiation Tactics: Open communication between parties is key to resolving disputes amicably. Adopting effective negotiation tactics, such as clearly defining goals, actively listening to the opposing party's concerns, and exploring both conventional and out-of-the-box solutions to resolve the dispute.

3. Pre-Litigation Mediation: Consider pre-litigation mediation, which is a non-binding settlement conference that takes place before a former judge or seasoned neutral lawyer. Typically parties submit their positions in writing and then meet in conference rooms at one location for a day to try to resolve their dispute confidentiality. This provides a way to not only try to resolve the dispute early, but also to test the strength(s) and weakness(es) of your position before spending the time and money of a lawsuit.

4. Leveraging Legal Remedies: This may involve sending demand letters, initiating a lawsuit, arbitration, or administrative proceeding. Sometimes negotiations will not be fruitful at all or without the leverage obtained by showing you are willing to pursue legal action to remedy the other parties breaches.

Case Studies

To illustrate the effectiveness of these strategies, consider the following case studies:

Case Study 1:

A business faced a breach of contract dispute when a supplier that failed to deliver goods as agreed upon. Business consulted with their lawyer, understood how the law applied to the facts and the strengths and weaknesses of their position and through that, the parties were able to negotiate an amendment to the agreement that provided a revised delivery schedule, additional options for pricing, and avoided costly litigation and preserved their business relationship.

Case Study 2:

In a complex contractual arrangement, a dispute arose over ambiguous terms regarding payment obligations. By engaging in pre-litigation mediation, the parties each submitted their positions, had an opportunity to test the strength of their position with a third-party neutral, and ultimately agreed to negotiate and clarify the terms of the agreement to reach a mutually acceptable resolution.

Case Study 3:

Opposing side breaches contracts and fails to pay. Attempt by businesses to negotiate resolution unsuccessful; other side not responding. Sending demand letter with draft complaint and tight deadline by which complaint will be filed if an agreement is not reached brings the other side to the table and a favorable settlement is achieved.

Contract disputes are an inevitable aspect of business dealings, but with the right strategies in place, businesses can effectively navigate these challenges and safeguard their interests. By prioritizing early identification, open communication, and proactive resolution tactics, businesses can minimize the impact of contract disputes and maintain fruitful relationships with partners and stakeholders.

When faced with complex contract disputes, it is important to have a knowledgeable and trusted legal partner with the experience to tailor the right solution to your business need.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

ARTICLE
19 April 2024

Understanding Contract Disputes: Strategies For Businesses

United States Litigation, Mediation & Arbitration

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