What is a Contract Dispute?
What is a contract dispute? This occurs when someone who is a party to a contract disagrees with the other party regarding any definitions or terms.3 min read
2. Contract Dispute Remedies
What is a contract dispute? This occurs when someone who is a party to a contract disagrees with the other party regarding any definitions or terms. For a contract to be valid, there must be what's called a “meeting of the minds.” In other words, all parties need to have a deep understanding of each term, and they must be in agreement to all terms set forth in the contract. Without mutual consent, there is no legally valid contract, and it could wind up being contested in court.
Under contract law, a dispute is often considered a breach of contract. This means one of the parties did not fulfill their contractual obligation. This can be a failure to perform a duty or keep a promise that was agreed to in the contract. Parties who enter into a binding contract need to understand that all responsibilities must be met, or you can be held in breach.
There are two main types of contract breaches:
- Material Breach: This occurs when one party doesn't perform a contractual duty, and the breach renders the contract irreparable. The breach has to be critical and deep to fall under material breach, which typically revolves around the main subject matter of the contract not being complete. When there is a material breach, the non-breaching party is not bound by the terms anymore and can sue for damages caused by the other party.
- Minor Breach: This occurs when there is a breach, but it is so minor that it doesn't disrupt the central subject matter of the contract. In a minor breach situation, both parties are required to carry on with the remainder of the contract, but the non-breaching side can still sue for damages.
One way to avoid potential contract disputes is to be very clear in your contract wording and definitions of industry-specific terms while making certain you document every step of the negotiations process.
Common Contract Disputes
Forming a contract can be a lengthy and tedious process in some instances. There are multiple steps that must be completed throughout the process. For a contract to be legal, there must be at least three important elements present:
- Acceptance of the offer
- Consideration, or some type of payment for the services or goods being contracted for
Contract disputes can happen at any time during the formation process. There are some types of disputes that are more common than others:
- Disputes on how the contract is drafted and during its review
- Disputes with offer and acceptance
- Errors and mistakes regarding the terms
- Disagreements on what definitions and technical terms mean
- Coercion and fraud (if someone is tricked or forced into signing the agreement then there is no “meeting of the minds”)
Disputes can also arise during the performance phase of a contract. An example would be a seller who fails to deliver the contracted goods.
Contract Dispute Remedies
The main remedies in a contract dispute usually fall into two categories:
- Legal remedies
- Equitable remedies
Legal remedies typically involve an award of monetary damages which is paid to the plaintiff to compensate them for the losses they incurred. Equitable remedies involve ordering a party to take certain action(s) to correct the dispute. This might be rewriting the contract to fix any errors or require the party in breach to perform their contractual duties. In most contract dispute cases, the parties can choose between equitable or legal remedies depending on the circumstances.
Monetary damage awards are typically the most common remedy. The compensatory damages are designed to place the non-breaching party back in the position they were before the contract. There are certain situations where you may see punitive damage awards. These are monetary awards that exceed the amount needed to fully compensate the non-breaching party. As the name suggests, they are designed to punish a party for seriously wrongful acts.
There are several other types of damage awards you might see in contract dispute cases:
- Liquidated damages: Specific damages previously identified by contract parties, in the event the contract is breached.
- Nominal damages: Token damage awards when a contract breach took place, but the non-breaching party couldn't prove monetary loss.
If the damages award does not fully compensate the non-breaching party, specific performance may be an additional remedy.
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