Contracts underlie nearly all significant business dealings, from the formation of partnerships and the employment of executives to vendor agreements and commercial real estate contracts. Entering into a contract should be the end of debate and negotiation regarding each party’s rights and responsibilities, but it does not always play out that way.
Contract disputes over terms of the contract occur in two very distinct situations: during negotiation of the contract terms and after the contract has been executed, when parties disagree regarding whether or not one or both parties are performing as agreed.
Working with an experienced commercial contract lawyer from the beginning may be the best way to ensure a successful negotiation and contract preparation and that you are clear on your rights and obligations and in a strong position to assert your rights if a dispute arises later.
Disputes Arising During Contract Negotiations
Most contract disputes over contract terms arise as the parties are working out the details of their agreement. A well-constructed contract will ensure that both sides are clear on their obligations, making it less likely that there will be disagreement over the meaning of a term after execution.
However, during the negotiation phase, each party will be striving to ensure that his or her interests are fully protected and to negotiate advantageous terms. Sometimes, disagreement over a term can stall the process and threaten the whole deal. In a commercial real estate transaction, for example, time is often of the essence. Inability to come to an agreement on one or more terms may jeopardize closing in time to meet the buyer’s needs, or may result in the seller receiving a more favorable offer while negotiations are in progress.
Generally, such negotiations go most smoothly when each party is represented by a commercial real estate lawyer. The attorneys will have the experience to understand the legal and financial significance of the clause in question, the industry norms, the potential ramifications of compromise, the likelihood that particular issues will arrive and how courts tend to treat the issue under discussion. Real estate contract lawyers will also be able to negotiate the issue more clinically and one step removed from the final decision-making, which can reduce the conflict and mistrust that sometimes emerges during a contract dispute.
Disputes Regarding the Meaning of a Contract Term
Ideally, the contract will have been fully negotiated and then carefully and clearly drafted by one contract lawyer and reviewed and explained by the other, so there should be no conflicts in the way the parties understand the contract terms. Still such contract disputes do arise.
In some cases, the conflict arises because the parties attempted to save time or money by using a form contract or repurposing a contract from another transaction and one or both never fully understood the terms that came with the document. When a contract has not been drafted with a particular transaction and specific parties in mind, there are often unintended consequences and surprises for one or both parties.
With a carefully drafted contract, disputes over terms are much less likely. However, situations still occasionally arise in which a party fails to fully understand some ramification of a term, or wants to avoid an obligation under the contract and so sets forth an argument intended to sway a court as to the interpretation of the term.
Avoiding or Arguing Contract Disputes
Clear language and complete contract terms are the best defense against conflicts over the meaning of terms arising after the contract has been signed and the business relationship, real estate transfer or other transaction is underway. This clarity and comprehensiveness are also the strongest tool should you have to debate the meaning of a term in court or through an alternative dispute resolution process.
You probably have more interest in the basics of your deal, whether that means gaining ownership of a piece of property, signing up a tenant for property you own, or creating a new business entity than you do in integration clauses, choice of law provisions, indemnification issues and the many other technical aspects that are critical to an effective contract. Let a professional manage those details and technicalities while you focus on the business at hand.
Contract Dispute Resolution Mechanisms
When terms are disputed after execution of the contract, that debate may be settled by a court of law, or through alternative dispute resolution such as mediation or arbitration. Although the parties can agree to mediation and binding or nonbinding arbitration when a conflict arises, the better approach is to determine in advance how any conflicts will be resolved and include that agreement in your contract terms.
Talk to a Contract Lawyer as Soon as Possible
Whether you are just beginning negotiations or have run into a conflict regarding the interpretation of an existing contract, our experienced contract attorneys can help. Involving an attorney as early in the process as possible will provide the best opportunity for your legal team to fully represent your interests and achieve the best result on your behalf.