When Contract Terms and Business Practice Diverge

Almost every businessperson has heard – and often said – the phrase: “But the contract says otherwise.”

The written agreement is, of course, the starting point. Yet in practice, what is set out in the contract and the way the parties actually work together can gradually begin to diverge. When a dispute arises, it may become clear that the wording of the agreement is not the only relevant consideration. The parties’ conduct over months or even years can be equally important.

Under the Lithuanian Civil Code, contracts are interpreted primarily by reference to the parties’ true intentions rather than the literal meaning of individual words. In doing so, attention is also given to the parties’ prior conduct and to the manner in which they have performed the agreement after it was signed.

We recently advised a client whose situation illustrates this clearly.

Its supply agreement imposed a strict ordering procedure: each order had to be submitted using a specific form attached to the agreement; the supplier had to confirm the order within three business days; and delays were subject to a contractual penalty of EUR 2,000 for each day of delay.

The contract looked clear. The parties’ practice did not.

For an entire year, orders were placed by ordinary email. The supplier would confirm prices by telephone after five, seven or sometimes ten days, while the client continued to pay the invoices without objection. No one used the prescribed order forms.

When the supplier later refused to fulfil an order agreed by telephone on the basis that no formal order form had been submitted, the client had a strong response: it could rely on the way the parties had actually conducted their business throughout the relationship.

The same reasoning could also work against the client. If it later sought the full EUR 10,000 penalty for five days of delay, the supplier could reasonably argue that the parties had never treated the three-day confirmation period as a strict operational requirement.

The issue is not created by one isolated departure from the contract. Risk arises where the agreement remains stored on a computer while day-to-day business begins to operate under different rules.

Deliverables may be accepted in a manner other than that prescribed by the contract. Timelines, prices or scope may be changed through email or Slack messages. A team member whose authority to amend the agreement was never clearly defined may quietly accept a new arrangement. A year later, one party may decide to rely on the original written terms.

At that point, the legal assessment will not necessarily be limited to what the contract says. The parties’ actual conduct, communications and established practice may become central evidence in the dispute.

Businesses should periodically compare the terms of their contracts with the way work is actually being carried out. Where deviations arise, they should either be corrected or formally documented through an amendment to the agreement.

Changes to price, scope or timelines should be recorded in writing. If a party agrees to an exception but does not intend it to become a new rule, this should be stated clearly at the time.

It is also important to preserve relevant evidence. Emails, meeting minutes, invoices and Slack messages may appear to be routine operational communications today, but can become crucial evidence if a dispute arises.

A written contract remains the cornerstone of a business relationship. But it does not exist separately from the way the parties behave every day. A good contract must not only be drafted properly – it must also be managed, reviewed and aligned with commercial reality throughout its term.