Performance while dispute is pending: Overview, definition, and example
What is performance while dispute is pending?
Performance while dispute is pending refers to the continuation of obligations and actions under a contract despite the existence of an ongoing dispute between the parties involved. This clause is included in many contracts to clarify that one party must continue fulfilling their contractual duties even if there is a disagreement, issue, or legal dispute regarding the contract. The performance is expected to continue until the dispute is resolved through negotiation, mediation, arbitration, or court proceedings.
For example, if two parties are in a contractual dispute regarding the terms of payment, the seller may still be required to continue delivering goods as per the original contract, even though a dispute over payment exists.
Why is performance while dispute is pending important?
The "performance while dispute is pending" provision is important because it ensures that business operations or obligations are not interrupted due to a disagreement or dispute between the parties. It maintains the stability of the contract by requiring that both parties continue to perform their responsibilities until the issue is formally resolved. This clause helps prevent one party from ceasing their obligations to pressure the other party into a resolution or settlement.
For businesses, this provision reduces the risk of delays or disruptions to the contract’s execution, maintaining operations even while legal or contractual issues are being worked through. It also ensures that disputes are handled efficiently without jeopardizing the ongoing business relationship.
Understanding performance while dispute is pending through an example
Imagine a software development company enters into a contract with a client to provide custom software. During the project, the client raises a dispute regarding the specifications of the software. Despite the ongoing dispute, the software company continues to develop and deliver updates to the software, as outlined in the contract, because the performance while dispute is pending clause requires the company to uphold its obligations while the disagreement is resolved.
In another example, a supplier and a retailer enter into an agreement where the supplier is to provide monthly shipments of goods. A payment dispute arises over one of the shipments, but the supplier is still required to deliver the goods as per the contract terms, even though the dispute over payment remains unresolved.
An example of a performance while dispute is pending clause
Here’s how a performance while dispute is pending clause might look in a contract:
“In the event of a dispute arising between the Parties, both Parties agree to continue performing their respective obligations under this Agreement while the dispute is pending resolution. No Party shall be excused from performance due to the existence of a dispute, and all obligations shall remain in full force and effect until the dispute is resolved.”
Conclusion
The performance while dispute is pending clause is essential in maintaining the flow of business operations and ensuring that contractual obligations continue despite disagreements or legal issues. By requiring both parties to honor their commitments, it helps to avoid unnecessary delays and disruptions in the performance of the contract. For businesses, this provision promotes stability and fairness, ensuring that disputes are handled without interrupting the ongoing performance of the agreement.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.