Businesses rely on contractual relationships with employees, suppliers, vendors and other third parties for continued success and growth. But when one party doesn’t live up to the terms of a contract (written or oral), it can cause extensive or, in some cases, irreparable harm to a company’s bottom line.
In this post, we will explain how to approach a contract dispute.
Elements of contracts
Generally, contracts must include certain basic elements. Each party must give up something (called “consideration”) and there must be a common understanding of what was agreed to (called “a meeting of the minds”).
The contract must also meet all state, federal and municipal requirements.
To bring certainty to a transaction, contracts should be written in clear and precise language, so all parties understand their roles and responsibilities. This includes contracts with vendors, suppliers and others. A written agreement helps all sides know what is expected of them as well and can specify the remedies if those expectations are not met.
Defining breach of contract
A breach can occur for different reasons, such as a supplier failing to meet the deadline for delivering a good or service. This is typically considered a “minor” breach if the supplier makes good on its obligation as soon as possible. A “material” breach generally occurs when suppliers or vendors deliver something other than what they promised. Breaches of contract usually fall under these categories:
- Anticipatory: One party alerts the other it cannot deliver as promised.
- Actual: One party refuses to live up to the contract’s terms.
Remedies may be built into the contract. However, if the party harmed by the violation feels it has no other option than to file a lawsuit, it must prove a legal contract exists and that the defendant failed to meet their obligations. In most cases, breach of contract is not a crime unless fraud is involved.
In a lawsuit, the injured party may seek enforcement of the contract (called “specific performance”) or compensatory damages. Every dispute hinges on particular facts and circumstances, however, as well as the applicable law.
That is why, when a dispute arises, it makes sense to talk with attorneys skilled in business litigation.