5 common causes of business contract disputes

5 common causes of business contract disputes

On Behalf of | Oct 5, 2023 | Business And Commercial Law |

Business contracts are the cornerstone of commercial transactions and relationships. They serve as legally binding agreements that outline the rights, obligations and expectations of all parties involved.

However, business contract disputes can arise for various reasons.

1. Ambiguous language and interpretation

One of the most prevalent causes of contract disputes is ambiguous or unclear contract language. When a contract does not define terms precisely, it leaves room for different interpretations. Parties may disagree on the intended meaning of certain clauses or provisions, leading to disputes over their obligations and rights.

2. Breach of contract

A breach of contract occurs when one party fails to fulfill its obligations as outlined in the agreement. This can include nonpayment, late delivery or subpar performance. When such breaches occur, the injured party may seek compensation, often leading to disputes over the extent of the breach and the appropriate remedy.

3. Misrepresentation and fraud

Misrepresentations or fraudulent statements made during negotiations can taint contracts. If one party provides false information to induce the other party into entering the contract, it can result in legal disputes. Accusations of fraud can be challenging to prove, but they can significantly impact contract relationships.

4. Nonperformance due to force majeure

Contracts often include force majeure clauses that excuse parties from fulfilling their obligations in extreme, unforeseen circumstances such as natural disasters or acts of war. Disputes can occur when one party claims a force majeure event, while the other party disputes its applicability or severity.

Also, these clauses have four necessary components. Just one missing or incomplete component can cause problems.

5. Scope creep

Sometimes, contract disputes arise due to “scope creep,” where one party attempts to expand the scope of work beyond what they initially agreed. This can lead to disagreements over additional compensation and deadlines.

Payment-related issues, such as disagreements over invoice accuracy, payment timing or the amount due, can also often result in contract conflicts. These disagreements can escalate quickly.