Business relationships depend on contracts, and disputes over those contracts are inevitable. Commercial contract disputes arise when parties disagree about their obligations, performance, or the consequences of breach. Understanding how these disputes unfold helps businesses protect their interests.
Common Sources of Disputes
Commercial contract disputes typically involve one party claiming the other breached the agreement, disagreement about what the contract terms actually mean, disputes over whether conditions for performance were met, claims that one party was fraudulently induced into the contract, and arguments about whether the contract is still enforceable.
Most disputes arise from ambiguous language, changed circumstances, or parties who simply don't want to perform as originally agreed.
Types of Commercial Contracts
Disputes arise across all types of business agreements, including sales contracts for goods and services, supply and distribution agreements, licensing and franchise agreements, construction contracts, lease agreements, employment and consulting contracts, and joint venture and partnership agreements.
Each contract type has its own common issues and applicable law. The Uniform Commercial Code (UCC) governs sales of goods, while common law typically governs service contracts.
Demand Letters
Before litigation, parties typically exchange demand letters outlining their positions and demands. A well-crafted demand letter can resolve disputes without court. It demonstrates you're serious, preserves evidence of the dispute, and sometimes prompts settlement.
Demand letters should clearly state the contract provisions at issue, the alleged breach or dispute, the damages or relief sought, and a deadline for response.
Negotiation and Settlement
Most commercial disputes settle without trial. Litigation is expensive, time-consuming, and distracting from business operations. Settlement allows parties to control outcomes rather than leaving decisions to judges or juries.
Early settlement discussions can resolve disputes quickly. Even after litigation begins, settlement remains possible—and common—at every stage.
Mediation
Mediation involves a neutral third party helping the parties reach agreement. The mediator doesn't decide the case—they facilitate negotiation. Many commercial contracts require mediation before litigation.
Mediation is confidential, relatively inexpensive, and often successful. Even when it doesn't resolve everything, it narrows issues for later proceedings.
Arbitration
Many commercial contracts contain arbitration clauses requiring disputes be resolved through arbitration rather than court. Arbitration is private, often faster than litigation, and the decision is typically final with very limited appeal rights.
Arbitration can be less formal than court but isn't necessarily cheaper, especially for complex disputes requiring extensive discovery.
Litigation
When negotiation and alternative dispute resolution fail, litigation may be necessary. Commercial litigation involves formal court procedures—pleadings, discovery, motions, and potentially trial.
Litigation provides powerful discovery tools (depositions, document production) and enforceable judgments, but it's expensive, public, and time-consuming.
Choice of Law and Forum
Contracts often specify which state's law governs and where disputes must be resolved. These provisions significantly affect your rights. Some states' laws favor one party over another; some courts are faster or more favorable.
Review these provisions carefully when entering contracts and when disputes arise.
Preserving Your Rights
Document everything related to the contract and dispute. Preserve emails, meeting notes, performance records, and communications. Don't destroy documents once a dispute arises—that can constitute spoliation with serious legal consequences.
Meet contractual deadlines for notice of claims. Many contracts require timely notice of disputes or claims, and failure to notify can waive rights.
Getting Legal Help
Business litigation attorneys understand commercial contracts and dispute resolution. They can evaluate your position, advise on strategy, and represent you in negotiations, arbitration, or court. Early legal advice often prevents disputes from escalating.