How to handle a contract dispute with a supplier

In the ideal world, computers never freeze, employees are happy and healthy, and shipments always arrive on time. Unfortunately, most businesses do not run quite that smoothly. Employees get sick, and suppliers deliver products late. When your business is up against a deadline, this can hurt your bottom line. You may be wondering if a supplier’s actions or inactions have broken your contract.

Breach of contract defined

When parties enter into a business contract, they are legally obligated to fulfill the duties outlined in the contract. Any failure to do so is referred to as a breach of contract. A breach can occur when the one party refuses to provide materials or services on time, a party does not provide materials or services at all or a party behaves in a way prohibited by the contract. If the other party makes it impossible for you to complete the contract, this might also be a breach of contract. The breach can be a material or immaterial breach of contract.

Material and immaterial breach of contract

A material breach renders the contract irreparable and could be cause for suing the other party. A material breach generally deals with more serious issues. With an immaterial breach, the behavior or inaction does not necessarily void the intent or purpose on the contract.

Maybe a supplier agreed to deliver a part for a toy you are manufacturing. The supplier delivered the part on Wednesday instead of Monday. In most cases, this would be considered an immaterial breach of contract. However, perhaps you are trying to fulfill an order for the holiday season. In the contract, you stated that you needed the part on Monday, and then the supplier brought it on Wednesday. This would likely be viewed as a material breach of contract.

Possible alternative resolutions

You might not want to pursue a lawsuit against your supplier. You could involve a mediator. A mediator is a neutral third party who reviews your dispute and tries to help both parties reach a compromise. You may also pursue binding arbitration. It also involves a neutral third party, but this party listens to both sides of the case and then makes a judgment. Some binding arbitration agreements stipulate that the parties give up the right to go to court, after the decision is rendered.

Filing suit and possible remedies

You may decide filing a lawsuit is the best decision for you and your company. If another party breaches a contract, the court may allow several remedies to the wronged party. One remedy is damages, which is basically payment for the other party’s error. Another remedy is called specific performance. With specific performance, the party that breached the contract is required by the court to do or provide whatever they were contractually obligated to do or provide originally.

There is a third option. If you have performed your part of the contract, you may want to cancel the contract and sue the other party for restitution. This should allow you to recover lost income and return your company to the position you were in before the contract was breached.

If you are unsure what option is best you, you may want to contact an attorney that specializes in business litigation. An attorney can review the contract and help you decide how best to move forward.

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