Contract Disputes Involving Pricing and Fees: When One Party Claims It Doesn’t Have to Pay

In a previous article, we discussed key considerations for addressing (and resolving) contract disputes when one party claims underpayment. If it is clear that one party has met its obligation to perform and the other party has failed to meet its obligation to pay, this can potentially be a relatively straightforward scenario. However, these situations can still lead to litigation, and parties seeking to enforce their right to payment will need to work with an experienced Miami breach of contract lawyer to pursue the legal options available to them.

When one party claims it doesn’t have to pay, the situation can quickly become much more complicated.

Parties to commercial contracts may dispute their payment obligations for various reasons. When facing these types of disputes, a key first step for both parties is to ensure that they have a clear understanding of what their contract says—and what it doesn’t. If a party’s claim that it doesn’t have to pay is supported by the circumstances at hand, then no further action may be required (or warranted). On the other hand, if a party’s claim that it doesn’t have to pay is not supported by the circumstances at hand, then the parties will need to either find a way to come to terms or rely on an arbitrator or judge to render a binding decision.

Potential Justifications for Nonpayment Under a Commercial Contract

With all of this in mind, let’s look at some potential justifications for nonpayment under a commercial contract. When isn’t a party required to pay? Broadly speaking, there are five main scenarios:

1. Failure to Perform

The first scenario is the other party’s failure to perform. If one party’s obligation to pay is contingent upon the other party’s obligation to perform, then nonpayment may be justified until such time as performance is complete. For example, if a contract for the delivery of industrial equipment states that payment isn’t due until installation is complete, efforts to seek payment before installation is complete will be premature.

2. Deficient Performance

Deficient performance can also justify nonpayment in some cases. However, this is heavily dependent upon the terms of the parties’ contract. In some cases, parties will stipulate that deficient performance justifies nonpayment (or at least a delay in payment until the deficiency is rectified). In other cases, however, parties may agree that withholding payment is not an appropriate remedy.

3. Incomplete Performance

Likewise, incomplete performance can justify nonpayment in some (but not all) cases. For example, let’s say a contractor walks away from a job halfway through. Is the contractor entitled to half payment? The answer depends on the terms of the parties’ agreement.

If the contractor is entitled to progress payments, withholding payment entirely may constitute a breach of contract. On the other hand, if the customer protected itself by negotiating a contract that requires payment only upon completion of the contractor’s work (and perhaps only after an independent inspection), then the contractor’s incomplete performance may justify withholding payment in full. Alternatively, the contractor may be entitled to payment only for materials. Once again, the language of the parties’ contract will be key.

4. Contractual Ambiguity

But what if the language of the parties’ contract is ambiguous? This happens far more often than it should—and it is a common source of contentious disputes between contracting parties. If a commercial contract is unclear about when payment is due, the parties may have little choice but to negotiate a resolution or present their arguments in arbitration or court.

5. Breach of Contract

Along with performance failures, other breaches of contract can also justify nonpayment in some cases. But, here too, the language of the parties’ agreement is critical. While some contracts authorize nonpayment as a remedy for breach, others make clear that one breach does not justify another. If the parties’ contract is unclear about whether nonpayment is justified, this is another situation in which they may need to hash out their differences, either between themselves or with the help of a third-party decisionmaker.

Resolving Commercial Contract Disputes Involving Disagreements Over Payment Liability

As you can see, determining whether a party’s refusal to pay is justified requires a careful assessment on a case-by-case basis. These are often complicated cases, and the parties involved will often have very different opinions regarding what is right and what is wrong. To resolve these disputes, the parties will generally need to:

• Evaluate All Relevant Terms of the Contract (and Applicable Common Law) – Assessing the contractual rights of the commercial parties starts with evaluating the contract itself. If the contract does not provide a clear answer, the parties may need to consider relevant common law to determine how a judge would resolve their dispute in court.
• Evaluate the Viability and Desirability of Settlement – Settling is always an option. However, whether it is a viable and desirable option depends on the circumstances. If your company is facing a payment-related contract dispute, you will need to make an informed decision about whether targeting a settlement is the best path forward.
• Pursue Litigation or Arbitration as Warranted – If targeting a settlement is not the best path forward, then protecting your company’s interests will generally involve pursuing either litigation or arbitration. In this scenario, you will need to determine whether the contract in question includes a mandatory arbitration clause, and if it does, you will need to determine whether this clause applies to the payment dispute at issue.

Schedule a Free Consultation with a Miami Breach of Contract Lawyer at Edelboim Lieberman

Is your company facing a commercial contract dispute involving one party’s claim that it doesn’t have to pay? If so, we encourage you to contact us promptly so that we can help. To schedule a free consultation with a Miami breach of contract lawyer at Edelboim Lieberman, call us at 305-768-9909 or contact us online today.