Contracts, by their nature, help to minimize the risk of business conflicts. Contracts can help specify the nature of a business relationship and what obligation each party has to the other. They provide a clear record of agreements between two parties that helps to make those arrangements more enforceable.
They can serve as a reminder of personal responsibilities, as the memory of negotiations may fade as time passes. Either party can always refer to the contract to verify the obligation that each party has to the other. A contract can also create enforceable penalties that may apply if there are issues fulfilling the contract. For example, vendors providing a service or delivering goods may include a clause allowing them to assess a financial penalty for late payments.
Unfortunately, even if businesses are cautious about consistently using contracts and making them as thorough as possible, disputes may still arise. The following kinds of contract disputes are among the most common.
Material breaches of contracts
Many of the most significant contract disputes relate to a material breach of the contract’s terms. One party completely fails to fulfill their obligations to the other, possibly causing delays or financial hardship for the other party. Material breaches of contract are so significant that they can trigger penalties and breach of contract lawsuits.
Restrictive covenant issues
Employment contracts and business-to-business agreements often include restrictive covenants. These terms prohibit certain behaviors, such as disclosing private information about how a business operates or starting a competing business. Non-competes agreements and non-disclosure agreements are common restrictive covenants. There may be a dispute if one party alleges that the other failed to follow the terms of a restrictive covenant.
Disagreements about contract interpretation
A large number of contract disputes occur because the two parties disagree about what the contract actually requires. Vague contracts and assumptions about business arrangements may lead to disputes where both parties have their own interpretation of the contract. Each party may feel like they have upheld their end of the agreement but the other has not.
There are numerous potential solutions for contract disputes, including the option of going to civil court. Drafting thorough and precise contracts can be as important as enforcing them if a breach occurs.