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How to handle a breach of contract dispute

On Behalf of | May 3, 2023 | Business Law News

Successfully owning and running a business in Colorado depends heavily on contracts. Having solid contracts in place and maintaining good relationships with the people on the other side of the contract keeps your business running smoothly.

However, contract disputes are likely to arise at some point, no matter what type of business you are in. It is important to know what to do when you find yourself in a contract dispute, to increase your chances of resolving it satisfactorily.

Alternative dispute resolution

One of the best ways to increase your chances of an amicable resolution to a contract dispute is to plan for disputes when you are drafting your contracts. Many contracts include an alternative dispute resolution clause, requiring the parties to go to arbitration or mediation if a dispute comes up.

Arbitration involves a meeting between you and the other party with an arbitrator who listens to both sides, takes evidence and decides the matter. An arbitrator’s decision is binding, the same as a judge’s decision, but arbitration helps you avoid going into court and typically saves you time and money.

Mediation is the same as arbitration, with one major difference. A mediator does not have the power to decide the issue, but only helps guide you and the other side to a resolution by offering suggestions and not taking sides.

Both arbitration and mediation are good options for not only saving time and money but also helping you preserve your business relationship with the other party. Heading straight into a courtroom as soon as a dispute occurs can result in hard feelings and ultimately end your business relationship.

Alternative dispute resolution is an option even if you do not have a mandatory clause in your contracts, so you can still suggest it.

Talk to each other

Before doing that, you may simply want to try talking to the other party. Lack of communication is one of the major causes of contract disputes.

Many times, contract disputes happen because of a misunderstanding or honest mistake. Rarely is the other party intentionally lying to you or trying to defraud you. After all, they have an interest in making the contract work as well.

Have a conversation about the issue with the other party, preferably in person, or at least on the telephone. Try not to do it through informal methods such as text or even email, as the meaning of words can be misinterpreted or misconstrued.

However, after you talk with the other party, follow-up with a summary of your conversation in writing. Outline the terms of what you talked about, including what the dispute is about and how you agreed you are going to handle it.

Weigh the costs of litigation

Sometimes there is no getting around it: the contract was breached; you are owed damages and no amount of talking is going to change that.

In that case, determine the damages you believe you are owed. Your damages can be in the form of monetary compensation, or you may want something done. For example, you might want the other party to send you a shipment of supplies you need to complete a project.

A court can award either type of damages but decide if litigation is worth it before filing a lawsuit. Even if you do not care about preserving your business relationship, litigation can be costly and slow. Decide if the damages you are asking for are worth litigation.

Knowing your best option is not always clear. Talking to experienced legal counsel about your contract dispute can provide you with a clear path forward.