8 Common Contract Disputes Impacting Small Businesses

You might think that your business is so small and inoffensive that you won’t have contract disputes. You will live up to the terms of any contracts you have, and you will judiciously choose business partners who are also likely to live up to the terms of their contracts.

However, the truth of the situation is that around 12 million contract lawsuits are filed against small businesses every year and roughly 90% of all businesses experience a lawsuit at some point in their lifespan. This means the odds are pretty good that your business will be involved in a lawsuit, most often over the terms of a contract. These are good reasons to make sure you have a small business lawyer who’s able to help and hopefully help before you get into a dispute!

Here are some of the common contract disputes where a business contract lawyer can help.

Timing Disputes

A contract often stipulates that one party will deliver something by a certain time. Depending on the language of the contract, this can lead to considerable dispute. For example, is the delivery deadline by start of business, end of business, or midnight on the date specified? Does it count as “delivered” if the supplier turned merchandise over to the shipper, but the product hasn’t yet arrived at the buyer’s property? If the contract allows for “reasonable” delay because of “unforeseen circumstances,” what circumstances apply and what delay is reasonable?

Resolving these disputes can be difficult, especially when you’re trying to maintain an otherwise profitable professional relationship between businesses. Having clear terms in your contract can help mitigate any disputes before they happen.

Disputes about Pricing, Fees, and Compensation

As with timing, there is often language about pricing in a contract. However, circumstances often lead to disputes about pricing, fees, and other compensation. One party might submit an invoice that is significantly different from the initial estimate. The second party objects and may point to language in the contract that they took to mean that the price would be as quoted and was not merely an “estimate” subject to change. That may resolve the dispute, or it may cause further disagreements about the language of the contract.

This may also happen with employment contracts. Employees may think that they were hired with one particular compensation package, but when they get the actual package – which might be days or weeks after their official first day – they find that it wasn’t as advertised. Depending on how much of the compensation package is described in the employment contract, it may be hard to resolve the dispute to everyone’s satisfaction.

Disputes about Responsibilities

The other side of compensation is responsibility. What is each party expected to do in order to earn their compensation? Employee duties may not be well-defined in their contract or job description, and they might balk at being asked to take on duties other than what they initially agreed to. Resolving the dispute to both parties’ satisfaction may not be easy.

This problem can also arise between suppliers and their clients. For example, a supplier might agree to deliver a certain number of Christmas trees, and when they arrive, the client is shocked to find that the trees don’t have stands. The client assumed the trees would come with stands, while the supplier assumed the trees would not have stands. The contract didn’t specify, and both parties felt they were getting a good deal because they had different ideas about what was to be delivered. This may seem like an absurd example, but it actually happens all the time, especially when business owners write their own contracts.

Durability of Contract

How long is a contract supposed to last? Who has the power to dissolve the contract? What happens when the contract is dissolved?

These aspects of the contract should be defined within its terms, but all too often there is misunderstanding or disagreement about what they mean. All too often, people skip over these parts of the contract because they assume that they won’t want to dissolve the contract early. They only discover the serious penalties that come with dissolving the contract when they try to get out of it.

Definition Disputes

Often, contract disputes arise over the definition of terms used in the contract. Several of the disputes we’ve talked about could be considered definition disputes. Some timing disputes can be described as disputes about the definition of the delivery date. In the Christmas tree dispute, the supplier defined “Christmas tree” as not including the stand, but the client defined it as including the stand.

Definition problems can arise in many contexts. In software development, scrum teams may deliver “minimum viable product” that meets their internal “definition of done,” but the buyer may not feel that software is either viable or done. In manufacturing, the final product may not be what a buyer expected, which they would say is a contract violation because the product is SNAD (significantly not as described). Definitions don’t always have to be written, either. A prototype can be seen as a physical definition of the promised product, and if the product doesn’t match the prototype, the buyer may object.

Lease Disputes

A lease is a common contract that can lead to significant disputes between the lessor and the lessee. There are many aspects of the lease that may be poorly written or difficult to understand, leading to disputes. Common areas of dispute include who is responsible for maintenance, how common areas are going to be maintained, terms of renewing or ending the lease, and the right to increase rent.

Many landlords put very unfavorable terms in their commercial leases, and it’s up to potential lessees to carefully evaluate the lease before they become a tenant.

Non-Compete and Non-Disclosure Agreements

Often, non-compete and non-disclosure agreements are the cost of doing business. In order to work with a certain company, you have to agree not to work with their competitors and not reveal certain information. However, the terms of these contracts can be difficult to understand and enforce. For example, parties might disagree about what constitutes a “competitor.” A signatory to an NDA might discuss information that they think is not covered by the agreement, but the other party might believe is sensitive.

Warranty Disputes

When you sell a product or service, there are often implied warranties, some of which are governed by state, local, and federal laws. In addition, you may provide an explicit warranty of your product. When a consumer buys your product and thinks it has failed, they may come to you seeking remedy under the terms of the warranty.

You might agree with them, and provide them their remedy, but there are several aspects of the process that can be contentious. First, the customer might not like the remedy, which may be a prorated refund or a discount on a replacement. Second, you might think that the customer treated the product in a way that voids the warranty, which they might dispute. Often, there are disputes about the terms of a “lifetime” warranty, which typically only runs for the specified lifetime of the product, not, as some assume, the lifetime of the owner.

Get the Help of a Small Business Lawyer

If you’ve read the examples above, you probably thought “That problem could have been avoided with a well-written contract.” You’re right. Many contract disputes are preventable. Often, they arise when business owners either write or sign contracts without the help of a lawyer.

Since 2007, business contract lawyer Elizabeth Lewis has helped many small businesses write good contracts and deal successfully with contract disputes. She knows the perils that come with many of the common contracts. She can help you write contracts that will protect your business and preserve good relationships with your business partners. She can review contracts offered by others to help you avoid any onerous terms that will be destructive to your business. She also offers a wide range of other legal services to protect your business, from drafting business formation documents to securing your intellectual property.

To get Elizabeth’s help with business contract law, please contact us today. The Law Office of E. C. Lewis serves clients in Denver and the surrounding areas.